(menafn – ecpulse)
The United Kingdom today continues to release more important fundamentals that only reassure the lingering hurdles ahead of policy makers next decision. The second reading for the first quarter GDP is expected unrevised today as the economy contracts with slowing capital investment and exports that were hit by weak global growth. The ONS is expected to report the unrevised quarterly contraction of 0.2% in the first three months of the year and hold flat on the year as the BoE suffers to support growth. With the deterioration in the jobs market and high inflation Britons remain under pressure and so far policy makers.
As the MPC said it, we are against a tough task, especially after they raised short term inflation expectations and revised lower growth estimates in the May inflation report. The IMF called on the BoE to add more stimuli to support growth, especially with resurfacing debt problems in the euro area that is affecting stability in UK.
Sterling was hammered by the prospects for more easing amid the broad selloff across the board from lingering debt woes and the Greek euro exit. The haven rush to the dollar is more weight on sterling, and even if we see UK more immune for now than the euro, it remains its neighbor and that will keep it under pressure.
The pound is again trading around critical areas at 1.5670-60 and we see that the lingering pessimistic sentiment this morning after the EU leaders failed to offer any comfort and with the recession to be confirmed from U.K. the bearishness will extend versus the dollar.
We still see the economy improving into the end of the year and Olympics summer will be very positive for U.K. growth, but without sustained path of recovery the economy will not fully exit its weak cycle.
The Minutes of the May meeting yesterday showed persistent calls from David Miles to add 25 billion pounds of purchases to the APF, and the members did discuss the possibility of adding more but still see the uncertainty very high with inflation threat. Though with data into the second quarter confirming the weakening economic status the BoE might be forced unwillingly to increase the APF even if it risks fueling more inflation.
Cameron with Obama stresses on the need for the euro area to contain the crisis to protect his economy. For Cameron the ballooning debt crisis is the enemy at gates and forced tough austerity at home that angered the people and pressuring growth, and with the G8 pledges to support the recovery and balance the belt, hopefully we see UK loosening soon though with public finances still suffering the coalition government might not be lenient in altering its stance!
