UK exits recession but investors remain cautious
Data published today confirmed that Britain had exited recession, as economic output expanded after the longest recession in 50 years.
The growth rate was slightly worse than the forecast 0.4 per cent, coming in at 0.1 per cent for the fourth quarter of 2009. Sterling faced some selling pressure on the back of the data, falling against the euro 0.53 per cent to €1.1452, and 0.44 per cent to $1.6150 against the US dollar.
Mark Bolsom, head of the UK trading desk at Travelex, said, ‘Although this is a step in the right direction, investors will be disappointed given the huge amount of stimulus employed by the authorities to boost the economy.
‘Investors may be cautious about overestimating the pace of recovery, and concerned that the Bank of England has yet to close the book on quantitative easing. We may see the pound lose some value today as a result of this. It is also likely to force the Bank to delay raising interest rates. I stand by my forecast that they will remain at 0.5 per cent until 2011.'
Bolsom argues that, although the data and survey evidence does tell us that the UK exited recession in its fourth quarter, the figures are utterly intangible to the everyday UK consumer and business.
‘The BRC’s disappointing retail sales figures released last week showed that people remain uncertain of their economic future and are not spending. Our business clients have also been telling us for a while that they are concerned about tight credit conditions – this was confirmed by a Bank of England Roundtable held in December.
‘Fiscal tightening is around the corner and we are expecting higher taxes and public spending cuts in order to tackle our ballooning deficit. So although we have officially exited recession, it is debatable how much this will have a positive impact on the everyday man.’
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