HiFX comments on the GDP figures

Andy Scott, associate director of FX advisory services at foreign currency specialists, HiFX, comments on the GDP figures.

“Sterling fell by around 0.5% against the dollar and the euro following worse than expected first quarter GDP growth numbers this morning. The first three months of 2015 saw the slowest quarterly pace of growth since the fourth quarter of 2012, with a sharp slowdown in business services and the finance sector. While the purchasing managers’ indexes have been picking up over the past three months, they appear to be indicating rising optimism about the outlook, rather than increased activity in the economy just now. There’s also the impact of the uncertainty of next month’s general election which can cause businesses to delay new spending and expansion, while they wait to see which political party’s policies will be implemented.

“Looking at the annual growth rate of 2.4% and the bigger picture in terms of the UK economy, there’s still plenty to be upbeat about with unemployment at its lowest since 2008 and consumer confidence riding high. As highlighted by the Bank of England’s last minutes, the Eurozone is now showing signs of recovery and as our biggest trading partner, this bodes well for increased external demand. Whilst today’s data will support the view for UK rates to remain on hold this year, we still expect sterling to strengthen against the U.S. dollar this year.

“First quarter GDP from the US is out tomorrow and is forecast to show the economy grew very little. The latest data is also indicating the economy there is struggling to rebound from the slowdown, making a rate hike less likely. Against the euro, we feel sterling is going to struggle to move significantly above the recent highs of 1.4200, as we feel the euro is undervalued here. We also believe that the ECB’s Q.E. programme will continue to assist the Eurozone economies to recover and cause money to flow back towards the single currency.”