By Maximilian Clarke

The UK's Office for National Statistics will tomorrow (Tuesday) publish its GDP figure for the third quarter 2011.

On a background of worsening global indicators, with a report published today warning of an imminent employment recession, as well as the continued Eurozone crisis, commentators are anticipating grim news. Discussing various factors likely to have influenced the figure, Jeremy Cook, Chief Economist at World First currency brokers, predicts the figure will be positive and an increase from the flatlined second quarter figure:

“Tomorrow we receive the preliminary reading of UK GDP for the 3rd quarter. It’s been a turbulent period, the last few months have seen more economic upheaval than many expected and, accordingly, it is proving difficult to predict how it went in terms of growth.

“Surveys from purchasing managers in the manufacturing, construction and services industries have been mixed over the past three months. Manufacturing has spent most of the time below the important 50.0 level, before recovering in September, whilst growth in construction has remained consistently positive, albeit at a dwindling rate. The important services sector was going great guns in July before slumping in August and bouncing back in September highlighting the confused nature of consumer spending and confidence at the moment in developed economies.

“In rather stark contrast to the relative negativity of recent confidence surveys retail sales in the UK rebounded strongly in September, although it is unlikely that this will continue through the 4th quarter as the High St remains at the behest of high unemployment, squeezed wages and a stagnant housing market.

“The impact of the European debt crisis has been singled out as the main reason for the Bank of England’s expansion of their asset purchase program, the return of Quantative Easing (QE). While the fears which have been propagated by the deterioration of the Eurozone may seemingly have little impact on ‘Joe Public’s’ decision to buy a new car, the effect on business is far from negligible. The CBI’s latest reading of business confidence has fallen to the lowest since late 2009, and this measure was slipping through to Q3.

“The main worry has been the slow grind of export growth in the UK economy, given the favourable conditions afforded by the relative weakness of sterling over the past 2 years. Obviously the global nature of the downturn has led to export markets freezing up, and the introduction of protectionist measures from various governments and central banks have not helped. However regardless of this the trade balance has begun to shrink, which is at least a positive sign.

“Our belief is that UK GDP in the 3rd quarter will have expanded at a rate of 0.4%, up from the Q2 figure of 0.1% that was weakened by the Royal Wedding’s effect on productivity and the supply chain reaction to the Japanese tsunami. As far as the number’s effect on sterling, we would expect upside to be muted for the pound unless the number is above 0.5% (consensus 0.3%) and to sell-off on a disappointing figure.”


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