U.K.'s Contraction Eased In The Third Quarter

Daily Forex Fundamentals | Written by ecPulse.com | Nov 25 09 10:16 GMT |

U.K. suffered the blues of the economic recession more than other major economies due to the financial and economic problems that were triggered after the burst of the bubble. However, the economy, following contraction of 2.4% in the first quarter, it managed to ease the pace of contraction in the second and third quarter and show progress after the strong monetary interventions by the BoE. PMI manufacturing for the month of October came in at 53.7, higher than the revised 49.9 from 49.5, surpassing the expected reading of 50.0. PMI services for October spiked to 56.9, the highest level since August 2007, higher than both the prior and expected readings of 55.3 and 55.5 respectively, while retail sales on an annual basis climbed to a 17-month high. The amelioration started to take place from the second quarter as the BoE cut the interest rate to an historical low of 0.5% and launched 200 billion pounds stimulus to bolster spending, growth, and reduce deflation risks. In response, the economy shrank 0.6% in the second quarter then the contraction mitigated to 0.4% in the three months ending September. The United Kingdom released today its preliminary GDP reading for the third quarter showing that the contraction moderated to 0.3%, in line with expectations, while on the year the contraction also eased to 5.1% from 5.2%. Looking into details, private consumption rose to 0.0% from -0.6%; government spending slipped to 0.2% from 0.6%; gross fixed capital formation increased to -0.3% from -5.2%; exports inclined to 0.5% from -1.4%; imports soared to 1.3% from -2.2%. It is clear from details that private consumption and exports lifted growth in the third quarter to the upside. Global demand on goods and services returned again with improvement in global economies, while consumers became more confident in the economy than before after the progress witnessed recently. The Bank of England anticipates the economy Britain will return to growth in the last quarter. The economy is expected to expand 2.2% next year and 4.1% in 2011, according to policy makers' projections announced in November. In November's inflation report, the bank mentioned that the growth may be revise upwards which matches the banks' anticipations. The bank of England in November kept the borrowing cost unchanged at 0.5% and raised the Asset Purchase Facility (APF) program by 25 billion pounds to 200 billion pounds to revive growth and spur lending and spending. Governor of the BoE, Mervyn King, stated recently that he has an 'open mind' about adding more to the current 200 billion pounds, while Prime Minister Gordon Brown this week asked for leaving stimulus to stay to prevent any drawback in recovery. These announcements may give a clue that despite the improvement the economic conditions are still stressed; while at the same time arouses fears of inflation on the long run. The British economy is still suffering from serious economic problems such as the high jobless rate and low inflation. Unemployment is currently at 7.8% or 2.46 million people where Claims for jobless benefits surged by 12,900, while the number of job seekers in the three months through September soared 30,000, reflecting the there some companies that are still shedding jobs to cut expenses despite the slowdown in the rate in August and September. On the other hand, consumer price index for the month of October is at 0.2%, while on the year it reached 1.5%. It is projected that inflation will reach nearly 1.6% before surpassing the target by mid-2012. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk