Unexpected UK growth fails to support sterling

Data this morning has revealed that the UK economy grew by 0.3% in the fourth quarter of 2009, an upward revision of 0.2%.

This runs against market expectations, which predicted a more modest rise of just 0.1%. Weak UK investment data, announced on Thursday, had led some to believe that there would be no revision at all, making this morning's figure all the more surprising. As yet however, the ailing pound has not found support, in fact slipping by over half a cent from the day's highs. 

Duncan Higgins, senior analyst at Caxton FX commented, "There was a lot of expectation surrounding today's data, particularly after the BoE said they felt 0.1% did not reflect the true growth of the economy. This upward revision will certainly come as a boost following a week of disappointing figures and downbeat sentiment toward the UK economy."

The market's reaction is surprising, with sterling losing traction following the data release. "Despite the positive news, there are still a lot of negatives built up against the pound. It will take a whole deal more than a 0.2% upward revision to offset the effects of a spiralling deficit. The growth figure is still too disappointing when compared to other G20 nations and recessionary pressures are far from over," explained Duncan Higgins.

Higgins continued, "Looking ahead, Caxton FX feels that the pound will continue to slip. Given the reaction in the markets this morning, it is clear that they need a run of strong data before taking sterling higher. Should the Bank continue to ring a downbeat tone in their policy meeting next Thursday, we could see the UK currency back down at €1.10 levels." 

Sterling has dropped half a cent against the euro this morning, with the price now below €1.12. The pound is also losing ground to the US dollar.