Sterling and FTSE blow despite economy’s revival

 

Financial markets gave the latest GDP figures a downbeat reception, despite the official confirmation that the recovery strengthened in the second quarter of the year.

The pound immediately fell three quarters of a cent against the dollar to $1.5331 after the Office for National Statistics revealed that the economy grew by 0.6 per cent between April and June.

The FTSE 100 was also trading down, despite the positive economic news which was in line with consensus forecasts. “While the Government and policymakers will declare this first estimate of second-quarter GDP as a major step forward, deep down the markets will be disappointed by the rate of growth,” said Marcus Bullus of MB Capital. “0.6 per cent is double what we had in the previous quarter but it still shows that the recovery is meek, not mind-blowing”.

City analysts said the second-quarter growth, which was underpinned by positive contributions from the services, production and construction sectors, made it less likely that the new Bank of England Governor, Mark Carney, would resort to more quantitative easing to stimulate growth.

“If this really is the start of a robust and sustainable improvement in the economy, it begs the question of how long can ultra-loose policy be justified for,” said Chris Williamson of Markit. However, the City consensus is still that Carney will unveil some form of forward guidance on interest rates next month.

“We don’t think that today’s news will stop the monetary policy committee from implementing forward guidance,” said Vicky Redwood of Capital Economics.

“In fact, the firmer signs of recovery make it all the more important that the committee reassures the markets interest rates will stay low even as the recovery gathers further momentum,” she added.

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