The Pound could receive a boost later this morning if the latest growth report from the Office for National Statistics (ONS) features a positive revision to the fourth quarter GDP print.
The first estimate of British GDP in the final three months of 2013 suggested that the economy expanded at a quarterly pace of 0.7% – slightly lower than the 0.8% recorded in Q3.
The majority of economists expect this morning’s second estimate to remain at 0.7%, however, recent Construction data has impressed raising the possibility that the original ONS figure could be upgraded.
Following a drastic -4.0% decline in Construction output during November, data released this month showed that the Construction Industry rebounded by +2.0% during December. Housebuilding rose 5.1% in December, bringing private sector residential ventures higher by 21.6% on the year.
The first estimate of Q4 GDP worked under the assumption that Construction contracted by -0.3% on the quarter, however, in light of December’s glowing report it is not apparent that the sector expanded by +0.2%. It also means that Construction has grown for three consecutive quarters for the first time since 2010.
Construction output accounts for around 7% of total economic activity in the UK, meaning that the +0.5% revision alone will not quite lead to a percentage point increase in fourth quarter GDP. However, if the new data brings to light any further improvements in British economic performance then it is possible that GDP could be revised higher to 0.8%.
Sterling is liable to rally against its major currency peers if Q4 growth is upgraded because this would make investors slightly more confident that the Bank of England will raise interest rates in, or before, the second quarter of 2015.
Following the Bank’s adjustment to its forward guidance programme on February 12th, which featured a set of forecasts suggesting that the first rate hike would take place in the second quarter of next year, speculation has proliferated to that effect. BoE policymaker Martin Weale hinted last week that rates could be raised sooner that Spring if wages rise faster than estimates suggest. And Ian McCafferty, one of Weale’s colleagues on the monetary Policy Committee, commented yesterday that market forecasts for a rate hike in the second quarter of 2015 are “not unreasonable”, which added to the positive sentiment behind the Sterling currency.
The Pound was also supported by a 1.5-year high Retail Sales report from the Confederation of British Industry (CBI) showing that 45% of business saw an increase in sales volumes during February, as compared to a year earlier.
A 76-month high Mortgage Approvals report added to Sterling’s sturdy performance yesterday.
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