By Max Clarke
Tomorrow is judgement day for Chancellor George Osborne, as the Office for National Statistics are to release the UK GDP figure for the second quarter.
The news over the past quarter has been filled with a series of increasingly bleak economic indicators, from falling disposable incomes, to falling consumer confidence and subdued high street sales, to stagnation in the housing market and high inflation].
Even the recent drop in inflation and unemployment are unlikely to mitigate what analysts universally anticipate to be bad news.
Discussing the UK’s economic performance, and the tomorrow’s likely verdict, is Jeremy Cook, chief economist at World First currency exchange.
“The consensus view sits at an increase of 0.2% following what has been, to all intents and purposes, a stagnant period through Q4 2010 and Q1 2011. While this is disappointing growth, it is still growth but will not be enough to satisfy those who believe that the government is currently on the wrong course and that a deficit reduction plan is causing unnecessary pain. Our view is that the flatness will continue and we are looking a figure of 0.0%. This will of course give sterling a bit of a kicking on the foreign exchanges and so we would recommend that anyone who is a seller of GBP that the prices in 24hrs time will likely be lower than they are at the moment.
“Even if the release is worse than expected we do not foresee the government changing its position on the deficit as, to do so, would draw considerable ire from the markets. Someone referred to George Osborne as the “bond markets’ poster boy” yesterday and while I believe that to be strong it is certainly true that nobody has seriously talked about a potential downgrade of the UK’s credit rating since the days of the hung parliament. This has been expressed in the price of UK debt with the yield on our 10 year gilt retreating back towards the 3% level; a market justification of a certain degree of security. These things can change quickly and dramatically however so caution is advised.
“The one thing that it will perpetuate is the belief that an interest rate rise from the Bank of England will be pushed further into the future. We are at the front end of the expectations curve with our proposal of a February rate rise with some in the market looking as far out as August.”
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