UK GDP showed that Britain managed to escape a triple-dip recession after recording an expansion in the first three months of this year. The advanced growth figures, which will be subject to two revisions, signaled a positive growth of 0.3%, compared with median estimates of 0.1%, following a 0.3% drop in the last three months of 2012. On the yearly basis, UK recorded an expansion of 0.6% from a prior of 0.2%, beating forecasts of 0.4%. As of 08:35 GMT, the pounded is traded higher versus USD around 1.5400 after hitting a high of 1.5412 and a low of 1.5263. The news come at the time where the IMF has urged UK Chancellor George Osborne to scale back some of the austerity measures to compensate the weak demand, yet Osborne remains committed to his spending cuts to cut budget shortfall in five years. The latest unemployment report has reflected the weakness in consumer spending as average weekly earnings surged just 0.8% in the quarter through February from a year earlier after the prior 1.2% increase. ILO unemployment rate for the three months ended February rose to 7.9%, the fastest pace in more than a year, recording a rise of 70,000 to 2.56 million, from both prior and expected readings of 7.8%. Employment edged up 2,000 to 29.7 million, marking the first drop since October 2011. The IMF has cut its projections for the country`s economic growth in 2013 and 2014 to 0.7% and 1.5% respectively, from its January forecasts of 1.0% and 1.9% while it noted the recovery was “progressing slowly.” On the other hand, Fitch credit ratings agency downgraded the UK credit rating this month to AA+ from its AAA top rating, citing the weakened economic outlook. Hence, today’s report gives glimpse of hopes amid the undergoing difficult situation as the UK economy may come back on the right track of recovery this year. In response, the BoE decided this month to leave both interest rate and APF quantity unchanged amid a continued split among policymakers regarding stimulus as Mervyn King, Paul Fisher and David Miles resumed their call for adding an extra 25 billion pounds to QE while the majority preferred a hold. The majority focused on inflation before deciding to keep stimulus on hold for another month as the rate lingered at 2.8% in the year ended March and therefore further extension in non-standard measures would put more inflationary pressure. “Medium-term inflation expectations had drifted upwards in recent months, and a further easing might exacerbate this movement and prompt renewed weakness in sterling, with implications for wages and prices. In addition, the extent to which supply capacity would respond to greater demand would depend on how quickly capital and labour could be redeployed from declining to growing businesses. This issue was better addressed by policies to improve the working of credit markets,” the minutes said. On the flip side, the minority took into consideration the current weakness in wage growth, slackening growth prospects and continued risks from the euro area, noting that “medium-term inflation expectations remained broadly consistent with meeting the target; and the Committee should look through temporary, even if protracted, periods of above-target inflation.” “Further asset purchases, by lowering longer-term interest rates and supporting a range of asset prices, could facilitate a smoother path towards the economy’s new equilibrium, help prevent a more persistent reduction in spending, and thereby avoid potentially lasting damage to productive capacity,” the minutes said.
EasyForexNews Research Team