UK avoids a Triple Dip Recession

Data out from the Office of National Statistics (ONS) showed that the UK avoided a Triple Dip recession after seeing growth of 0.3% in the first quarter of this year, beating forecasts of 0.1%.

It must of course be said that this is a preliminary reading and historically, preliminary GDP readings have proved highly volatile and subject to revisions in the second or final readings. Therefore, today’s data should be taken with a pinch of salt.

That said, this reading helps to settle many nerves in both Whitehall and the City of London and gives Osborne some much needed breathing space after the disappointment of yet another credit ratings downgrade just last week from Fitch and warnings for a change of strategy from the IMF.

What this reading does do of course is also apply even less pressure on the Bank of England to increase QE levels. With only 3 out of the 9 committee members voting consecutively for an increase of £25bn in QE, and inflation rising to 2.8%, this reading will likely enable the BoE to elongate their ‘watchful stance’ on the UK data front before deciding when to act on more stimulus. A further contraction in Q1 GDP would have applied even greater pressure on the MPC to ignite the printing presses.

The market reaction to the data was to demand more sterling, which rallied by more than 100 pips against the US dollar to $1.54 as the data gives the pound a ‘double boost’ by the fact that the UK economy is stronger than first thought and it also lessens the chances of more QE in the very near term, which is traditionally negative for sterling.

Equities remained largely unchanged however with the FTSE 100 losing 12 points to trade at 6418. This is no real surprise of course given many of the FTSE 100 blue chip stocks actually rely on profits outside of the UK shores.

For now then, this GDP reading provides a sense of calm after some stormy comments on the UK’s economic recovery path and weak data over recent weeks. But we must wait for the second reading, when the majority of data streams has been included in the GDP reading to confirm that UK growth in Q1 was indeed 0.3%.