By Claire West
Coming in against the odds, data revealed today has shown that UK economic growth in the third quarter grew by 0.8%, double what the market had been expecting.
Unsurprisingly, the figure has given sterling a further boost as the market reassesses the prospect of near term quantitative easing [QE]. However, the cynical would point to the fact that at 0.8%, economic growth is still some way down on the 1.2% recorded in the three months through June. With spending cuts ahead the market will still be thinking about the prospects for Q4.
Duncan Higgins, analyst at Caxton FX says, “The slowdown in economic output is clearly apparent but today’s data is far from the picture of negativity that has been drawn. Heading into a period of tough austerity, the fourth quarter may struggle to maintain these levels of growth, but today’s figure at least offers slightly more optimistic prospects.”
The immediate market reaction has seen sterling climb around half a percent against the euro, building on a rally earlier this morning.
Higgins adds, “Sterling’s recent movement has been dictated by the question of quantitative easing. Today’s data is likely to dampen the prospect amid hopes that the economy may yet be able to weather the fourth quarter without the need for additional stimulus.”
“A sustainable sterling recovery is still some way off but a move back toward its recent lows against the euro is looking increasingly unlikely. The Bank will not take QE off the table in reaction to the data. The voice for further monetary easing may be quieter though, at least until we see the latest inflation figures,” continues Higgins.
Sterling is currently up over a percent on the day against the euro, and has climbed near a cent and half against the dollar to sit just above $1.5850.