Release Explanation: Gross Domestic Product (GDP) determines the total worth of all goods and services produced by the economy. GDP is the broadest measure of activity and the primary gauge of the economy's health. “To foreign investors, a strong economy is viewed favorably as it spurs investment opportunities in the domestic stock and bond markets. More importantly, the central bank is more likely to raise interest rates in the face of a strong and growing economy,” TheLFB-Forex.com Trade Team said.
TheLFB-Forex.com Trade Desk Thoughts: In the first quarter, the U.K. economy contracted by 1.9%, a much stronger decline than the expected 1.5%. At the same time, the Q4 2008 decline was revised lower to 1.6%. Currently, the U.K. economy is enduring a rather strong recession, contracting for three consecutive quarters.
The GDP was driven down by services and production industries output in Q1 2009, similar with the previous quarter. Total production output weakened further in the first quarter, decreasing by 5.5 per cent, compared with a fall of 4.5 per cent in the previous quarter. Manufacturing output made the largest contribution to the slow down, falling by 6.2 per cent compared with a 4.9 per cent decrease in the previous quarter. Services output weakened by 1.2 per cent compared with a fall of 0.8 per cent in the fourth quarter. Business and finance made the largest contribution to the decrease in output
“The current 1.9% quarterly contraction is the biggest since 1979. The U.K. GDP is down from one year ago by a whopping 4.1%. According to the Bank of England estimates, the downturn will continue in the second part of 2009. The U.K. economy is estimated to contract 4% in 2009, but most likely, this forecasts will be revised lower.” TheLFB-Forex.com Trade Team said.
Forex Technical Reaction: The pound had a very strong reaction to the news release, plunging 100-pips. Since the Friday session started, the pound lost 100 pips against the dollar, and 140 pips against the euro.