The pound has staged a remarkable recovery this week after very poor Q4 GDP figures released earlier this month. It would appear that traders over did the sterling sell off on fears of a UK double dip recession. This week we have seen a rapid expansion in the CIPS manufacturing index on Tuesday and today we have seen the greatest expansion in the UK services sector for 8 months.

Whilst it is still relatively early to predict whether the UK economy will return to recession after Q1 GDP has been announced later in Spring, it would appear that the poor weather in Q4 last year played a significant part in the UK’s lack lustres growth in the last quarter of 2010. The better than expected manufacturing and services data is showing us that the Q4 weakness was temporary and all is not lost for the UK economy this year.

The Bank of England still faces the challenge of inflation in the short term and is not out of the woods just yet. Their inflation report will be in the final stages and given the recent deterioration in inflation data there is a strong likelihood that a rate hike will be seen sooner rather than later. Market participants do not however think that we will see a rate increase until at least the May MPC meeting. At this point they will know the outcome of the Q1 GDP figures and will be able to make a more informed decision.
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“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”

Best Regards

Luke Zorab
Torfx Currency Dealer