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Forex News – UK continues to grow, Q4 GDP at 0.5%

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img_0817-copieThe second estimate of UK gross domestic product (GDP) for the fourth quarter of 2015 showed that economic growth expanded by 0.5% quarter on quarter. This was in line with most expectations but this figure was the slowest quarterly growth rate in a year and lower than the third quarter’s 0.7% q/q growth rate. Nevertheless, the GDP data are much better than the Eurozone’s and a recent series of strong UK economic data highlight that the UK economy is on track for steady growth. The Bank of England had forecast earlier this month that Britain’s economy will grow by 2.9% this year – its fastest growth in nearly a decade.

Just last week, UK employment data showed that Britain’s jobless rate fell to the lowest since august 2008, marking a new post-financial crisis low. The unemployment rate dipped to 5.7% as the number of Britons out f work fell by 97,000 to 1.86 million in the three months to December.

Other recent strong data include the UK services PMI which showed the sector grew strongly in January. The services sector makes up more than 70% of the UK economy, and reached 57.2 last month from December’s 55.8, marking the 25th consecutive rise.

At the Bank of England Inflation Report hearings earlier this week,the BoE Governor Mark Carney appeared optimistic about the UK economy.  Carney said that low inflation was temporary and will return to the Bank’s 2% target within two years. Inflation stood at a record low 0.3% in January. Carney cited falling prices of oil and food as the main culprit of a drop in the consumer price index.

Despite the low inflation rate environment, the BoE Chief noted that the focus of policy was towards tightening. Expectations are for the Bank to begin hiking rates by early 2016. Currently, the benchmark rate has been at a record low of 0.5% for nearly six years.

The British currency has been strengthening steadily in the past month and hit an 8-week high of 1.5551 during the Asian session today. The pound is expected to remain propped up by rate hike expectations and improving UK economic data, although the upcoming UK elections in May could limit gains.

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