The Office for National Statistics (ONS) has released its first estimate for UK growth for the last 3 months at 0.8% slightly below analysts’ expectations of 0.9% for the quarter. The UK economy has grown by 3.1% over the last year, the ONS says. That's the strongest year-on-year change in GDP since the Q4 of 2007, after the near-collapse of Northern Rock. Though the figure is "disappointing” compared to expectations the key point to remember is that is shows the economy is still growing and heading in the right direction. The figure is unlikely to alter the Bank of England’s projections over the near term.
The focus of the MPC has changed to “slack in the labour market,” from the initial Forward Guidance unemployment threshold of 7%, (The previous ILO Unemployment was below the threshold at 6.9%) has come under some criticism as it is a difficult figure to measure.
Bank of England Governor Mark Carney was in Bristol yesterday, visiting regional business and start-ups, when asked about interest rates: “The MPC is comfortable with the position we are at now. There is still considerable slack in the Labour Market. The reality is people want to work longer hours and take on more work and until that changes we will not see any changes… When we do begin to see increases in interest rates they will be gradual and they will be limited.” Bristol Post article. Carney’s focus on gradual and limited rate increases is likely to disappoint traders that believe the Bank of England will be forced to raise rates earlier than expected. As the UK economy is returning to economic growth and concerns of a housing bubble remain, some believe the time to raise the BoE interest rates, from the record low is nearing.
Prior to the release cable was trading at session highs nearing the psychological 1.6850 level. Following the release slightly missing expectations, combined with Carneys comments, cable has sold off trading down to a 1.67 handle.