NIESR Projects That UK Economy Grew By 0.8% In Q3, Pound Dollar Exchange Rate Drops On Investor Sentiment

Published: Tuesday, 9 October 2012 16:00 BST - Written by Frank Davies

STORY LINK NIESR Projects That UK Economy Grew By 0.8% In Q3, Pound Dollar Exchange Rate Drops On Investor Sentiment

This morning’s session brought the delivery of a triple blow to Sterling in the form of a disappointing set of UK Industrial Production, Manufacturing Production and Visible Trade Balance figures for August. The data suggests that the British economy is continuing to creak under the pressure of the hefty austerity measures which the country’s coalition government has imposed since it was elected in 2010. However, this afternoon’s UK NIESR GDP estimate for last month provided a fillip for the beleaguered Pound, revealing that the British economy had expanded by a whopping 0.8% in the three months to the end of last month. Maybe there is light at the end of the long, dark tunnel, down which the Pound has travelled over the past two and a half years. If the official government Q3 GDP figure, due out in the next few weeks, confirms this estimate, then the Pound could rally before the year is out.

Meanwhile, global stocks have continued to head Southwards on the session, as the pervading ‘risk-off’ trading environment continues to prevail. Doom-laden projections for the future prospects of the global economy from the International Monetary Fund and the World Bank in the past 48 hours have triggered a broad shift out of risk, causing the safe-haven US Dollar to enjoy considerable support on the week so far. This has seen the GBP USD exchange rate dip to within touching distance of the 1.6000 level this afternoon. However, the encouraging UK GDP estimate from the NIESR may well cause the pair to reject this psychologically significant level and head higher in the near-term.

The next major risk event of note comes in the form of tomorrow evening’s Beige Book Economic Survey, which will provide further indication of the relative state of the US economy. A decent showing would cause investors to scale down their expectations for an increase to the $40bn per calendar month which the Fed is currently committing to QE3. This, in turn, would send Cable lower.

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