Sterling surges as GDP growth figures smash expectations

Sterling gained around one per cent against the Dollar and the Euro following the release of the eagerly awaited first quarter growth figures Thursday morning. The Office for National Statics said the economy grew by 0.3% in the first three months of 2013, three times the consensus amongst economists who had predicted growth of 0.1%.
 
A lot had been made of this particular quarters growth figures because of the risk of the U.K. economy slipping back into recession for a third time in five years. There will no doubt have been cheers and relief in Westminster, at least from the coalition's side of the house that despite the continued reductions in government spending, the economy is managing some growth. The IMF very recently suggested that the chancellor should scale back on deficit reduction to focus more on growth in the economy. Looking at this morning's figure they might be slightly wrong. Despite there still being some areas of the economy that are still creating a drag, there does appear to be positive signs in some of the key sectors such as retail and the service sector.
 
The data seems to vindicate the Bank of England's recent upbeat claims on the economy and its outlook. Business sentiment has improved as have credit conditions and this should hopefully help support continued growth through the rest of this year. From a monetary policy point of view, we are now less convinced by the prospects that the Bank of England will follow the Federal Reserve and Bank of Japan in opting for more asset purchases (Q.E.). This should help Sterling hold on to some of the gains we've seen in the past six weeks following it's horrendous start to 2013 where it clocked up losses of around 8% against the greenback and the single currency. With GDP figures from the Eurozone likely to show a contraction for the first quarter and few signs that activity is picking back up; the Pound could once again make a show over the 1.20 level and the technically important 1.55 level against the Dollar in the coming weeks.

By Andy Scott, premier account manager at foreign currency exchange brokers HiFX.