So the UK's growth is now confirmed as sluggish for the second quarter. No one was expecting a stellar figure and the data came in-line with expectations at 0.2%. However, the markets hadn't been expecting some rather upbeat news from the Office for National Statistics that said if it wasn't for special factors like the Royal Wedding and the exceptionally late Easter holidays then growth may have been 0.7 per cent over the last three months. Its analysis suggests that the "special factors" could have depressed the services sector by 0.4% and the production sector by 0.1%.
The market was positioned for a weak number, so this flicker of hope that the UK isn't about to fall back into recession helped boost sentiment to sterling.
However, we may be able to avoid a recession, but the details of the report were mixed. Service sector output rose by 0.5%, this was boosted by finance and business services and also government spending on services which rose by 0.8% on the quarter up from flat in the first quarter. Government spending is still rising, so if the government wants to reach their fiscal targets they will have to stop, which could adversely impact growth.
Total production decreased by 1.4%, led by mining and quarrying, which would have been adversely effected by the extra holidays in April. Worryingly, for the UK's efforts at re-balancing, manufacturing output is now thought to be 9% lower than it was before the 2008 recession, after falling 14.5% during the economic contraction.
Export volumes were also lower in Q2 compared with the prior three months. So the weak pound continues to evade boosting exports.
The UK's economy remains on shaky foundations, retail sales volumes rose by 0.2% in the second quarter and were essentially flat over the last 12 months. This is partly explained by rising food prices. Food sales, which contribute to more than 40% of total retail sales, are 4.2% lower than a year ago, which is the biggest fall since the series began in 1998.
Although non-store sales (internet dales) are up by 25%, this isn't enough to off-set weakness in food sales since they make up only 5% of total volume.
Overall this is a mediocre reading of GDP, but not as weak as some expected. The detail in the report provided the most interesting reading and showed just how much carnage the global recession did to the UK economy. There is no clear sterling trade from this data, and we continue to expect the pound to be impacted more by what the euro and dollar are doing.
Don't forget that you can now follow Forex.com's research team on Twitter: http://twitter.com/forexresearch
Kathleen Brooks| Research Director UK EMEA | FOREX.com
d: +44.(0).20.7429.7924 | f: +44.(0).20.7929.2010 | M: +44 (0) 7919.411.957 | e: firstname.lastname@example.org| w: www.forex.com/uk
23 College Hill | 3rd Floor | London EC4R 2RT
Now you can follow us on Twitter: http://twitter.com/forexresearch
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.