Tuesday, 27 October 2015 17:42
LONDON: Sterling slipped on Tuesday after data showed British economic growth slowed more than expected in the three months to September, fuelling concern that a period of rapid economic growth is coming to an end.
Third-quarter gross domestic product growth slowed to 0.5 percent from 0.7 percent in the three months to June, a bigger slowdown than economists’ forecasts of a drop to 0.6 percent.
Sterling fell to $ 1.5309 after the data, before recovering to $ 1.5325, still down 0.2 percent on the day.
The growth figures may give pause for thought to the Bank of England, which had also forecast the economy would grow by 0.6 percent, as it mulls when to raise interest rates for the first time since the financial crisis.
A Reuters poll on Monday found economists now do not expect a BoE rate hike until the second quarter of next year, having last month predicted a move higher in rates in the first quarter. And markets are not pricing in a rate rise until the end of 2016 or even 2017.
“The market has pushed the first rate hike way out into the future so I don’t think today’s GDP figures are going to have much impact in terms of that timing,” said Bank of Tokyo-Mitsubishi currency economist Lee Hardman.
“The market is already pricing in a very dovish profile for Bank of England policy, so you could argue a lot of bad news is in (sterling’s) price already.”
The numbers also showed that services output — the largest part of the economy and by far the biggest contributor to growth — continued to grow strongly, recording its strongest performance since the last quarter of 2014.
Against the single currency, the pound turned flat on the day after the data, trading at 72.055 pence per euro .
Most strategists are calling for sterling to strengthen against the euro over the coming weeks and months, as the monetary policy outlooks for Britain and the euro zone, where more easing measures are expected, continue to diverge.
“In contrast to the ECB … the BoE is not actively counteracting the currency uptrend. Instead, it still says that the next step is likely to be a rate hike — a measure which will probably result in an even firmer exchange rate,” wrote Commerzbank strategists in a research note.
