NIESR GDP Estimate Suggests UK Economy Is Still Contracting Sending GBP EUR Exchange Rate Lower

Published: Wednesday, 13 March 2013 09:00 BST - Written by Toni Johnson

STORY LINK NIESR GDP Estimate Suggests UK Economy Is Still Contracting Sending GBP EUR Exchange Rate Lower

Yesterday afternoon’s closely-watched UK GDP Growth Estimate for February showed that the UK economy is still in contraction. The figure, which uses the British Government’s official modelling software to generate its forecast, suggests that Britain’s down-at-heel economy shrank at a quarterly pace of 0.1% last month. Even more worryingly for the UK’s economic prospects, the data also saw January’s counterpart figure revised downwards from -0.1% to -0.2%. The numbers strongly suggest that next month’s official UK GDP data for Q1 2013 will show that for the second quarter in succession, economic activity in the UK has shrank, meaning that Britain has once again dipped into a technical recession.

In truth, such an outcome would not come as a surprise for investors holding GBP-denominated assets, following a slew of disappointing PMI surveys at the start of this month which showed, (with the notable exception of Britain’s tertiary industries), activity in each individual sector of the UK economy waned last month. There were further negative signals regarding the state of British economic activity yesterday morning in the form of a dismal showing for the latest UK Industrial and Manufacturing Output results. Anything other than a negative print for the UK’s Q1 2013 GDP data would now come as a pronounced surprise. The Pound Euro exchange rate struggled to remain above its 16-month low in the middle part of the 1.1300s as a consequence.

Looking ahead to today’s session, investors holding USD-denominated assets will be looking for a positive result from this afternoon’s US Advance Retail Sales data for February to provide more fuel for the Greenback’s steady improvement against the Pound since the end of last year. A tentative performance from North American shares yesterday afternoon caused a slight wobble in the recent downward move for GBP USD, but this could all change at lunchtime today.

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