British Pound (GBP) Exchange Rate Forecast: UK GDP to Dictate Movement
As the European session began the Pound was in a stronger position against peers like the Euro while investors looked forward to what they believed would be an upbeat UK industrial output report.
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Sterling advanced on almost all of its currency counterparts this morning but went on to fluctuate as the UK data fell short of estimates.
Measures of industrial and manufacturing output revealed that production slowed in December.
As London-based economist James Knightley observed; ‘The story from the industrial sector was a little disappointing. The concern is that the manufacturing series is consistently undershooting what the business surveys are suggesting is happening.’
Industrial production advanced by 0.4 per cent in December, month-on-month, rather than the 0.6 per cent expected, while manufacturing production (which was also forecast to climb by 0.6 per cent) increased by 0.3 per cent.
The UK data published over the second half of last year indicated that the pace of the UK’s economic recovery was going to outstrip even the most optimistic of estimates, but since the New Year reports have been little restrained.
However, Pound losses were limited after a separate report showed that the UK’s trade deficit narrowed by considerably more than expected in December.
Britain’s total trade deficit dropped from 3.6 billion Pounds to 1 billion Pounds.
Sterling was also supported as NIESR asserted that UK GDP would expand by 2.5 per cent over the course of this year.
They commented; ‘We expect consumer spending to remain the key driver of the recovery in 2014 and 2015, supported by continued buoyancy in the housing market.’
NIESR is due to release its GDP estimate for December at 15:00 GMT. If it shows that growth slowed from the 0.7 per cent recorded in November the Pound could edge lower.
Before the weekend additional Pound volatility could be inspired by the highly influential US non-farm payrolls report.
It is believed that the US economy added 180,000 positions in January and that the unemployment rate held at 6.7 per cent.
A surprising result could have far-reaching repercussions.
Next week the UK data to look out for includes the Bank of England’s inflation report.