UK data pours cold wa­ter over rate hike

Growth of 0.3% in sec­ond quar­ter in line with fore­casts

The Star Early Edition - - INTERNATIONAL - Jemima Kelly

THE POUND edged down yes­ter­day af­ter data showed Bri­tain’s econ­omy gath­ered only a lit­tle speed in the sec­ond quar­ter af­ter al­most stalling at the start of the year, pour­ing cold wa­ter on ex­pec­ta­tions for UK in­ter­est rate hikes in the com­ing months.

Growth of 0.3 per­cent in the quar­ter was up from 0.2 per­cent in the first three months of the year, in line with fore­casts. But that fig­ure is likely to ce­ment ex­pec­ta­tions that the Bank of Eng­land (BoE) will keep in­ter­est rates on hold next week at their record low level.

The pound had risen to its strongest lev­els in 10 months against the dol­lar in re­cent weeks, as a se­ries of hawk­ish com­ments from BoE of­fi­cials drove ex­pec­ta­tions that rates could be raised soon, per­haps be­fore the end of the year.

The BoE’s 2017 growth fore­cast, how­ever, was for 1.9 per­cent. Yes­ter­day’s data sug­gests that the econ­omy grew just 1 per­cent in the first half of the year on an an­nu­alised ba­sis.

The pound slipped to $1.3010 af­ter the num­bers, down from $1.3033 be­fore­hand and leav­ing it down 0.1 per­cent on the day.

“The rea­son why a num­ber even in line with ex­pec­ta­tions can be quite bear­ish (for the pound) is be­cause it’s un­der­shoot­ing the Bank of Eng­land’s fore­casts,” said BNP Paribas cur­rency strate­gist Sam Lyn­ton-Brown.

Bri­tish gov­ern­ment bond fu­tures were lit­tle changed af­ter the data, up 21 ticks on the day at 125.98 points, trad­ing in line with Ger­man Bund fu­tures.

Lyn­ton-Brown added that the BoE may now start to rein in some of their hawk­ish lan­guage, which would be likely to weigh on both UK front-end yields and ster­ling. And he sug­gested the Bank’s hawk­ish tilt had been aimed at sup­port­ing the pound.

“They’ve been talk­ing tough per­haps be­cause they want to act soft – the lan­guage has been geared to­wards pre­vent­ing the cur­rency from weak­en­ing sub­stan­tially fur­ther,” he said.

Against a broadly weaker euro, the pound was up 0.1 per­cent on the day at 89.28 pence. That was still less than a cent away from an eight-month low against the sin­gle cur­rency plumbed last week.

Many an­a­lysts say ster­ling’s rel­a­tive re­siliency against the dol­lar in re­cent weeks is mainly down to weak­ness in the US cur­rency, which has strug­gled on a run of weak US data as well as wor­ries about po­lit­i­cal sta­bil­ity.

They also say that de­vel­op­ments around Brexit will con­tinue to be the main driver for the pound, which has fallen al­most 14 per­cent against the dol­lar since last June’s ref­er­en­dum.

“The lat­est GDP fig­ure comes in a week where the In­ter­na­tional Mone­tary Fund (IMF) has al­ready re­vised UK growth fore­casts for 2017 from 2 per­cent to 1.7 per­cent as ‘weaker-than-ex­pected ac­tiv­ity’ will have Brexit un­cer­tainty writ­ten all over the IMF’s rea­son­ing for the down­grade,” said An­thony Ku­rukgy, sales trader at Foenix Part­ners, a bro­ker­age.

PHOTO: AP

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.