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U.K. Q2 GDP Rises As Expected
The U.K. economy expanded as expected in the second quarter underpinned by services and manufacturing, data showed Friday.
Gross domestic product grew 0.8 percent sequentially in the second quarter, the same rate as seen in the first three months of the year, preliminary data from the Office for National Statistics said today.
The growth figure also matched economists' expectations. GDP was estimated to be 0.2 percent above the peak in the first quarter of 2008.
GDP grew 3.1 percent from the same quarter a year ago, also in line with forecast.
The production side breakdown of GDP showed 1 percent quarter-on-quarter increase in services and 0.4 percent expansion in production. Meanwhile, construction fell 0.5 percent and agriculture dropped 0.2 percent.
Another report from ONS showed that services output advanced 3.3 percent year-on-year in May. On a monthly basis, services output climbed 0.3 percent, it said.
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U.K. Q2 GDP Growth Stable At 0.8%; Returns To Pre-Crisis Level
British economic growth remained high as expected in the second quarter as a robust expansion in the dominant service sector, and industry completely offset the slight weakness in the construction sector. With the second quarter expansion, GDP returned to its pre-crisis level.
Gross domestic product grew 0.8 percent sequentially in the second quarter, the same rate as seen in the first three months of the year, preliminary data published by the Office for National Statistics showed Friday. The growth figure matched economists' expectations.
GDP was estimated to be 0.2 percent above the peak in the first quarter of 2008. According to the ONS, the economy shrank by 7.2 percent from the peak to trough in 2009.
In the second quarter, GDP grew 3.1 percent from the same quarter a year ago, which was also in line with forecast.
The production side breakdown of GDP showed that quarter-on-quarter growth in the service sector rose to 1 percent from 0.8 percent in the first quarter. The industrial production growth slowed to 0.4 percent from 0.7 percent. Within in industry, manufacturing output was up 0.2 percent.
On the other hand, construction output fell 0.5 percent, reversing the prior quarter's strong 1.5 percent increase. Likewise, agriculture output dropped 0.2 percent versus the 1 percent rise a quarter ago.
Another report from the ONS showed that services output advanced 3.3 percent year-on-year in May. On a monthly basis, services output climbed 0.3 percent, it said.
Samuel Tombs, a senior UK Economist at Capital Economics said he remains optimistic on the scope for the UK economy to maintain its current growth spurt. The economy is likely to experience another couple of years of robust growth and only gradual rises in interest rates, he said.
The Ernst & Young ITEM Club said early this week the U.K. will post the strongest growth among the G7 nations as investment from firms is set to surprise on the upside. The think tank lifted its 2014 GDP outlook to 3.1 percent from 2.9 percent.
In the World Economic Outlook, released Thursday, the International Monetary Fund upgraded its GDP growth outlook for the U.K. to 3.2 percent from 2.8 percent and the estimate for 2015 to 2.7 percent from 2.5 percent.
Bank of England Governor Mark Carney on Wednesday said the interest rate will have to start rising to maintain price stability as the economy normalizes. Policymakers have no pre-set course and the timing of any increases in interest rates will be determined by the data.
Commenting on the second quarter GDP data, IHS Global Insight's Chief UK Economist Howard Archer said the ongoing robust GDP growth in the second quarter very much keeps open the possibility that the BoE could raise interest rates before the end of 2014, although it remains a very close call and much will clearly depend on how well growth holds up over the coming months and what happens with earnings growth.
James Knightley, an economist a ING Bank NV said the BoE will end up tightening monetary policy sooner rather than later with November being the favored date for the first rate hike.
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GBP/USD forecast for the week of July 28, 2014
The GBP/USD pair fell during the course of the week, breaking through the 1.70 handle. However, there is significant support all the way down to the 1.69 level, which could bring the buyers back into the marketplace as we are most certainly still in an uptrend. The support at that area should send market back to the 1.72 handle though, and perhaps even the 1.75 level given enough time. Don’t really have any interest in selling this market, at least until we get below the 1.67 handle which would show a significant breakdown in the upward momentum.
GBP/USD Forecast July 28-Aug.1
GBP/USD took a tumble last week, as the pound coughed up over a 100 points and slipped below the 1.70 level. The pair closed the week at 1.6964. This week’s highlight is Manufacturing PMI. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.
British releases were positive last week, led by GDP which posted a strong gain. However, the US dollar was broadly stronger last week, thanks to strong readings from US employment, housing and manufacturing data.
* All times are GMT
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British Homebuyers' Confidence Weakens: Halifax
British homebuyers' confidence deteriorated in the second quarter, a survey from mortgage lender Halifax showed Monday.
The balance of people who believe now is 'a good time to buy' fell to 5 from 34 in the previous quarter. This was the largest fall since April 2011.
Meanwhile, about 57 percent felt it would be a good time to sell and 32 percent think it is a bad time, giving a balance of 25.
Craig McKinlay, mortgages director at Halifax, said, "It appears that we've reached a tipping point with the equilibrium between buyers and sellers much more out of sync."
Pound Close to One-Month Low as Speculators Pare Bullish Bets
The pound was about 0.1 percent from the lowest level in a month against the dollar as hedge funds and other large speculators reduced their bullish bets on sterling to the least since March.
Profit warnings by U.K. companies in the first half rose the most since 2012 as sterling’s world-beating rally weighed on earnings, according to a report by EY, the consulting firm formerly known as Ernst & Young LLP. The pound has surged 11 percent in the past year, making it the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. U.K. government bonds fell.
“A lot of good news is baked in the cake as far as sterling is concerned,” Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney, said in an interview on Bloomberg Television’s “On The Move” with Rishaad Salamat. “For the time being at least it looks as if in a lot of those long positions in sterling there may be a rush for the exit.”
The pound was little changed at $1.6986 as of 10:59 a.m. London time after falling to $1.6962 on July 25, the weakest since June 25. The U.K. currency dropped the most since March last week. Sterling was little changed at 79.10 pence per euro.
Bets on an advance in the pound exceeded those wagering on a decline by 27,497 contracts in the week ended July 22, down from 38,770 a week earlier, the latest Commodity Futures Trading Commission data show. They climbed as high as 56,412 in the week through July 4, the most since 2007.
Ten-year gilt yields rose two basis points, or 0.02 percentage point, to 2.59 percent. The rate slid to 2.54 percent on July 23, the lowest since June 2. The 2.25 percent bond due September 2023 fell 0.165, or 1.65 pounds per 1,000-pound face amount, to 97.25.
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GBP/USD gains on disappointing U.S. pending home sales report
The pound rose against the dollar on Monday after industry data revealed pending home sales in the U.S. dropped in June, defying market calls for a gain.
In U.S. trading on Monday, GBP/USD was trading up 0.08% at 1.6990 up from a session low of 1.6972 and off a high of 1.7001.
Cable was likely to find support at 1.6962, Friday's low, and resistance at 1.7095, Wednesday's high.
The dollar softened on Monday after the National Association of Realtors reported that U.S. pending home sales fell 1.1% in June, disappointing expectations for a 0.5% gain.
"Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved," NAR chief economist Lawrence Yun said in a statement.
"However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates."
The data sent investors selling the greenback for profits ahead of the Federal Reserve's policy statement on Wednesday and the July jobs report due out on Friday.
The dollar firmed last week on upbeat durable goods, weekly jobless claims and new home sales reports, though Monday's home sales data prompted investors to take a breather with the U.S. currency.
Investors were also awaiting final data on U.S. second-quarter growth on Wednesday.
Meanwhile across the Atlantic, the pound continued to see support after preliminary data on Friday revealed that the gross domestic product rose 0.8% in the second quarter, in line with market expectations, which gave the pound some support.
Elsewhere, sterling was flat against the euro, with EUR/GBP down 0.01% at 0.7911, and up against the yen, with GBP/JPY up 0.08% at 173.00.
On Tuesday, the U.S. is to publish reports on house price inflation and consumer confidence.
The U.K. is to release data on net lending.
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U.K. M4 Money Supply 0.1% vs. 0.0% forecast
The amount of domestic currency in circulation and deposited in banks in the U.K. rose more-than-expected in the last quarter, official data showed on Tuesday.
In a report, Bank of England said that U.K. M4 Money Supply rose to a seasonally adjusted 0.1%, from -0.1% in the preceding quarter.
Analysts had expected U.K. M4 Money Supply to rise to 0.0% in the last quarter.
U.K. Mortgage Approvals At 4-Month High
U.K. mortgage approvals increased more-than-expected to a 4-month high in June, recovering from a temporary slowdown caused by mortgage lending regulations.
After four months of decline, approvals for house purchases increased to 67,196 in June from 62,007 in May, the Bank of England data showed Tuesday. It was forecast to rise to 63,000. The latest figure was the highest since February.
The International Monetary Fund on Monday advised the U.K. to tighten its monetary policy if new regulations introduced to contain overheating in the housing market prove ineffective.
The Bank of England may need to consider raising interest rates in case macroprudential measures prove insufficient to deal with financial stability risks from the housing market, the Washington-based lender said.
Drawing attention to the risks of a prolonged period of record low interest rates, BoE Chief Mark Carney last week said the biggest risks are linked to the housing market.
Today's data suggests that Mortgage Market Review, introduced in April had a temporary effect on the property market.
According to British Bankers' Association, loans approved for house purchases increased to a 3-month high of 43,265 in June from revised 41,881 in May.
Mortgage lending is likely to rise at a slow but steady pace over the rest of the year, said Matthew Pointon, a property economist at Capital Economics. In turn, that is consistent with further gains in house prices, although at a slower pace than that seen over the past 12 months, he added.
Total lending to individuals increased GBP 2.5 billion from May, BoE reported. Within the total, lending secured on dwellings climbed at a slower pace of GBP 2.1 billion in June, after rising GBP 2.3 billion in May. On a yearly basis, secured lending grew 1.5 percent.
At the same time, consumer credit grew only GBP 0.4 billion after rising GBP 0.7 billion. Annually, growth remained unchanged at 5.3 percent in June. On the other hand, lending to businesses decreased by GBP 3.4 billion, in contrast to last month's GBP 2.3 billion increase.
IHS Global Insight's Chief UK Economist Howard Archer said the renewed, sharp fall in net lending to businesses looks both disappointing and worrying as it is vitally important for sustained and balanced UK growth.
Despite the overall sharp drop in net lending in June, net lending to small and medium-sized enterprises rose by GBP 235 million.
The monetary aggregate M4 rose 0.1 percent in June from May when it fell by 0.1 percent. On a yearly basis, M4 was down 0.6 percent versus a 0.8 percent drop a month ago.
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BoE Unveils Tough Clawback Rules On Bankers' Bonuses
The Bank of England on Wednesday outlined plans to tighten bankers' bonus rules that eventually limits their inclination to take high risk.
According to the new proposal, bankers could be forced to pay back their bonuses up to seven years from the date of payment if they break financial conduct rules.
Earlier in March, the BoE had suggested to set the clawback period at six years from the time of receiving the payment.
Currently, bonuses are paid out over a period of three to five years, and it could be clawed back if appropriate. Depending on seniority, the bank today said deferred portion of bonus payment should be made at least in five or seven years.
The consultation on new rules will close on October and it will come into force on January 1, 2015. This new regulatory framework was proposed jointly by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority.
"Clawback is most appropriate in cases where the individual has some responsibility or culpability for the circumstances giving rise to the grounds for action," PRA said. The central bank thus, "narrowed the grounds to exclude a material downturn in financial performance."
The announcement came after Lloyds Banking Group was fined GBP 218 million for rigging market benchmarks, earlier this week.
"As these new rules are amongst toughest in world, we need to be careful we don't create uncertainty which might make it increasingly hard to attract talent to London," said, John Cridland, Director-General of Confederation of British Industry.
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