UK’s annual GDP growth slows; Osborne warned of “bumpy times ahead”

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 28, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - UK’s GDP data released by the ONS today showed annual the pace of growth in Britain was the weakest in nearly three years hurt by global economic slowdown. The GDP report also showed how the British economy was hit by the slump in oil price which has fallen 70 per cent from its peak in June 2014 and has negatively impacted inflation in most developed countries. UK’s economy has also been hurt on account of the slowdown in China and fall in commodity prices. Chancellor Osborne waned of “bumpy times ahead” and stressed that UK must “stick with plan that's cutting deficit, attracting business, creating jobs”.

    UK’s economy grew 2.2 per cent in 2015, down from 2.9 per cent in 2014. In 2014 it was the fastest-growing major advanced economy. Even after a drop in its annual growth rate in 2015, UK’s economy can be expected to have grown the maximum compared to the other large economies. The IMF last week had forecast that the economy will likely register an annual growth rate of 2.2 per cent through 2015, 2016 and 2017, higher than the other advanced economies.

    However, consumer demand has remained broadly solid, with previous data showing retail sales enjoying their strongest quarter of growth in a year, bolstered by falling prices in stores and record levels of employment.

    Howard Archer of IHS Global Insight noted that growth was “relatively lacklustre” and “worryingly lopsided. He highlighted that growth was dependent primarily in the service sector which he mentioned “saw output growth pick up to 0.7% quarter-on-quarter from 0.6% in the third quarter.” Both construction output dipped and industrial production declined subtracting substantial percentage from the overall growth figures. Industrial output recorded its first fall since late 2012.

    Manufacturers were hit by weak global demand and strong currency. Mild weather experienced in this quarter led to lower demand for gas and heating oil. It also impacted retail sales during the holiday period as demand for winter apparels declined. Construction output also dropped by 0.1 per cent in Q4 following a 1.9 per cent fall in the previous quarter.

    GDP reported however showed growth had improved slightly quarter on quarter, growing 0.5 per cent in Q4, up from 0.4 per cent growth seen in the third quarter. The growth as pointed out by Archer was driven by Britain's large services sector, which expanded at the fastest rate in just over a year supported by positive developments in business and financial services.

    Year on year, output was noted to have risen in the three months to December to 1.9 per cent, down from 2.1 per cent in the third quarter, marking and the smallest increase since 2013. The figures strengthened the expectation that robust growth seen in UK in the previous two years will not be seen till global outlook recovers.

    The Bank of England has held rates steady at record low level of 0.5 per cent for some time now. Drop in inflation, poor wage growth, slack in manufacturing sector are some of the concerns plaguing policy makers. Governor Mark Carney has said "now is not yet the time'' to hike rates as he feels ''The world is weaker and UK growth has slowed.” He reiterated that he would wait for growth to rise and wages to pick-up before raising rates.

    Markets broadly expect BoE to start raising rates in January or February 2017. Six banks including Goldman Sachs Group Inc., Bank of America-Merrill Lynch and JPMorgan Chase & Co. pushed their forecasts on the timing of the first rate hike to the fourth quarter of 2016. Most economists polled by Reuters expect the central bank to raise interest rates in the third quarter of 2016.
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