The UK economy grew by 0.6% according to the initial estimate for Q2, exactly as expected. It expanded by 0.3% in Q1 and avoiding a triple dip recession. The economy still remains 3.3% below the peak recorded in Q1 2008.
The initial reaction to the release was an immediate collapse all the way to 1.5310 before it rebounded. It remains far from the previous levels. The underlying expectations were probably for an even higher growth rate, even though +0.6 (QoQ) is a very solid outcome. It is worth noting that the dollar began re-strengthening before the publication, so the pound didn’t fall as badly against other currencies. EUR/GBP did not really jump.
Opinion: UK GDP figures as expected – continue to sell Sterling
GBP/USD was gaining steadily towards the publication, rising from 1.53 all the way to 1.5380 – an area which capped it quite stubbornly so far. EUR/GBP was also going in favor of the pound, dropping below 0.86.
The UK economy exited its recession with very strong growth in the third quarter of 2012, mostly due to the Olympic Games in London. It then squeezed again in Q4 and there was fear of another recession: a third one since the beginning of the financial crisis. However, the nice growth in Q1 2013 prevented two consecutive quarters of contraction.
For more on the pound, see the British Pound forecast.
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