Yesterday was a tremendous day in the foreign exchange markets. For the second consecutive quarter UK GDP growth was massively better than expected coming out at +0.8% for Q3 following on from an impressive +1.2% in Q2. Nothing defines the strength of an economy better than GDP, yet the doom mongers dismissed the figure based on their view that it was a single quarter. They predict Q4 2010 and Q1 2011 will be bad so one swallow doesn’t make a summer. Of cause they said this in Q2 when growth was also significantly better than expected so does two quarters of excellent growth make a summer? The 2% rise in growth in the past 6-months is the fastest pace of expansion in 10-years.
Hawkish Bank of England member Andrew Sentence called for a hike in interest rates based on the strong GDP figures. It’s hard to argue when the hard facts show the UK growth is experiencing healthy growth and rising inflation, in an environment of ultra low interest rates.
The breakdown in growth was encouraging with the service sector expanding +0.6% and the manufacturing sector rising +1.0%, taking the annual growth rate to +5.3% which is the strongest year-on-year rise in 16-years.
This strong UK growth figure puts the need for further Quantitative Easing (QE) on the back burner which has helped springboard the pound 2.5% higher against the Euro in a very overdue correction which hopefully signals an end to sterling’s 9% fall of the past 2-months.
Ratings agency Standard and Poor’s upgraded the outlook for the UK from negative to stable, and affirmed our AAA sovereign debt rating. This is a clear vote of confidence for the government and its efforts to tackle the fiscal deficit.
Shadow Chancellor Alan Johnson claimed the strong figures showed the momentum remains from Labour’s support for the economy. If he hadn’t been smiling like a Cheshire cat you could have been mistaken for thinking he was being serious.
Q3 CPI inflation data from Australia overnight disappointed for the second consecutive month. This softer number has raised the likelihood the Reserve Bank of Australia (RBA) will again sit on the sidelines and leave interest rates on hold next week. The Aussie dollar has now fallen almost 3.5% since hitting parity with the US dollar last week.
Greece and Ireland have managed to stay out of the press for a few months but have reemerged this morning. The risk of Greek political upheaval was voiced by the President Mr. Papandreou while the biggest bond house in the world PIMCO warned that Greece would default on their debt within 3-years. The Irish Prime Minister has just said that Ireland’s problems are so bad that everyone has a role to play in dealing with them.
We end on a sad note. Psychic octopus Paul has died in his home town of Oberhausen at the tender age of two. Paul shot to fame after he successful predicted the outcome of eight World Cup football matches. Before he died he predicted that England would win the bid to host the 2018 World Cup. Paul was a lovely mollusca and will be greatly missed.
cat (Catharine Higginson) #1
Clare_Allen (Clare Allen) #2
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