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UK Posts Average GDP Rise

Britain’s economy grew 0.8 percent in the third quarter of this year after data posted this morning from the office of national statistics; the figure was boosted by net trade which made its biggest contribution to growth in two years.

The second estimate of growth was unrevised standing at 2.8 percent over the period.

The ONS said net trade contributed 0.4 percentage points to growth over the quarter, the biggest contribution since the end of 2008, as exports grew faster than imports.

While the figures may reassure policymakers that the past depreciation of the pound is helping to rebalance the economy, the recovery is still fragile with deep government spending cuts which will kick-in in earnest from next year acting as a brake.

The foreign exchange market perception on interest rates in the UK is unlikely to change without significantly higher growth figures. Equally the perception on further quantitative easing measures is also unlikely to change. These factors combine to promote a picture of a stable pound in the medium term, gaining against the Euro, moderating against he high yielders and losing value against the Dollar as the American economy is ahead of the recovery curve.

The Euro has continued to weaken this morning despite a high German IFO reading. Forex market participants are starting to doubt whether German growth is enough to keep the European head above water. We expect further weakness into the medium term as economies outside of Germany continue to stagnate. Spanish debt is becoming an issue as their longer term debt needs to be refinanced in the near term, any hike in borrowing rates could send them back into a severe plunge.