January 2014

In the trading room today: What’s Next for the USD Following the FOMC Decision? In the aftermath of the Federal Reserve’s decision to continue to taper despite of the recent lackluster economic data from the U.S., we gauge the odds for the Fed to wrap up the QE program this year and explore the outlook for the USD, we analyze the move lover toward an important support level for the EUR/USD currency pair, we take a look at the price correction in the GBP/USD pair, we note this week’s reseilience of the USD vs JPY, we highlight the market’s reaction to the FOMC monetary policy announcement, the German CPI, and the U.S. GDP, we discuss new forecasts from Commerzbank and UBS, and prepare for the trading session ahead.


USA 

Press Release

Release Date: January 29, 2014

For immediate release

Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other  policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.

In the trading room today: How Long will the EUR Continue to be Resilient vs USD? With the euro maintaining its strength against the USD in recent months despite of the Fed’s decision to start tapering and the ECB rate cut to a new record low, we ponder if the remarkable resilience of the single currency will continue, we analyze the latest trend developments in the EUR/USD currency pair, we note the renewed bullish momentum in the GBP/USD pair, we keep an eye on the bounce higher of the USD vs JPY, we highlight the market’s reaction to the German Ifo Index, the U.K. GDP and the U.S. Consumer Confidence, we discuss new forecasts from Citigroup and Bank of America, and prepare for the trading session ahead.

The British economy expanded by 1.9% in 2013– the fastest GDP growth since the first quarter of 2008, after 0.7% q/q growth in final three months of last year. But the UK economy still remains 1.3% smaller than the pre-crisis peak…

 


Powered by Guardian.co.ukThis article titled “UK economy grows by fastest rate since financial crisis – live” was written by Graeme Wearden, for theguardian.com on Tuesday 28th January 2014 14.55 UTC

UK economy posts best annual growth since 2008

Time for a very brief catch-up.

Britain’s economy has posted its fastest annual growth since before the Great Recession, expanding by 1.9% during 2013.

The Office for National Statistics reported at 9.30am that GDP rose by 0.7% in the final three months of 2013.

Chief economist Joe Grice said that, after a long haul, there are signs that the recovery is more broad-based.

We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently.

The growth was, predictably, welcomed by Conservative ministers as a sign that the government’s economic plan is working.

George Osborne said:

“These numbers are a boost for the economic security of hardworking people.

Growth is broadly based, with manufacturing growing fastest of all.

It is more evidence that our long term economic plan is working. But the job is not done, and it is clear that the biggest risk now to the recovery would be abandoning the plan that’s delivering jobs and a brighter economic future.”

But shadow chancellor Ed Balls said Britain’s cost-of-living crisis wasn’t resolved, and backed business secretary Vince Cable’s warning last night that the shape of the recovery was wrong.

Deputy PM, the Liberal Democrat’s Nick Clegg, welcomed the GDP news but also cautioned that deficit-reduction plans need to “fairly” share the burden.

• City economists broadly welcomed the data — Berenberg Bank’s Rob Wood reckons we could see growth rise to 3% this year.

Britain’s Services sector grew by 0.8% in the last quarter. Industrial production was up 0.7% (with manufacturing output jumping by 0.9%), but construction output fell by 0.3%.

 

Some economists warned that this shows Britain has failed to rebalance its economy since the financial crisis began. The best-performing part of the services sector was the “Business services and finance” section.

The IPPR said that the recovery could stumble unless firms use their cash piles on business investment.

Productivity remains a concern, too, with Duncan Weldon of the TUC flagging up that the number of extra hours worked is rising faster than GDP.

An opinion poll from ITV News and ComRes found that many people fear inequality is rising. It also found that just 22% of people believe George Osborne should get the credit for the recovery.

And with that, Nick Fletcher is taking over for the rest of the day. Cheers all. GW

ITV News/ComRes poll on the economy

Three quarters of Britons believe that the gap in wealth between rich and poor is widening in the UK, and barely a fifth reckon George Osborne should get the credit for the recovery.

Just two findings from an opinion poll published by ITV News and ComRes this lunchtime, which showed that many people say they haven’t felt the benefits of the upturn..

It found that a majority saw inequality rising as the UK recovery picks up pace — with 61% agreeing that “economic growth has only really benefitted wealthy individuals” so far.

2,052 British adults were interviewed, online, between Friday 24th and Sunday 26th January 2014.

 

While 40% said the economy had got better over the last three months, 34% reported no change and 25% said it had got worse.

Here’s another highlight:

There is a degree of optimism moving forward, with three in ten (31%) British adults agreeing that they are confident that if the UK economy grows they will be personally better off, despite 38% disagreeing.

However, only one in ten (11%) agree that they have benefitted from the growth in the UK economy over the past six months and seven in ten (71%) disagree.

There are more details over on ITV News’s website.

Updated

Duncan Weldon: The productivity problem

Back to UK GDP, and I just chatted with TUC senior economist Duncan Weldon about growth and productivity.

He explained that while the 0.7% growth in Q4 2013 is clearly welcome, the balance of the UK economy still doesn’t look great.

Indeed, it appears to have become less balanced since the financial crisis – with the Service sector now above its pre-crisis peak but the Manufacturing and Construction sectors around 10% smaller.

Unless those parts of the economy grow faster than services, you’re not going to get a better balance.

But his main concern is about productivity — recent labour market stats show that the total hours worked rose by 1.1% in the three months to November. Today’s data shows 0.7% growth in the three months to December — so either there was a big drop in output in December (unlikely) or output per hour fell in Q4.

Britain’s falling productivity is one of the big economic mysteries of recent years — why is it taking more and more hours to produce the same amount of output since the crisis began?

Weldon reckons there are clues in the unemployment data. It shows a large rise in people employed in healthcare and human services (up over 4000,000 since the start of 2008) and real estate (+100k), but significant falls in construction (-200k) and manufacturing (->300k) over the same period.

 

The pattern, he concludes, is that Britain has created more lower-paid, lower-productivity jobs since the crisis began – which is very bad news in the long term for growth potential and living standards.

He’s just launched a longer blog post of his own about it. Worth a read:

The Changing Shape of the British Economy in Recession & Recovery

Updated

Switching to the US briefly, a slab of bad American economic news just hit the wires.

Orders for durable goods slumped by 4.3% in December — the biggest monthly fall since last July. Economists had expected that orders grew by 1.8% .

December was a grim month weather-wise in the US (ice storms gripped the country, and has already been blamed for recent poor employment data). So perhaps it’s all the snow’s fault…

GDP: more reaction

Our economics correspondent Phillip Inman writes that George Osborne cannot, and shouldn’t, crow too loudly about the UK growth:

Vince Cable and his supporters are well aware there are key components of the recovery that are still Awol. Business investment kept falling last year when it was supposed to take over from consumer spending as one of the main drivers of growth. Export growth has stuttered to a halt, leaving us with a persistent balance of payments problem before the country really starts to spend and suck in huge amounts of imports.

Then there is the London factor. Along with the south-east, the capital is bounding along while many regions are still propped up by the public sector.

But concerns about the nature and sustainability of the recovery are only one restraint on triumphalism.

The other is the need to continue selling austerity as a key election message. How can the government cheer while it tries to convince a weary electorate they must vote for more cuts?

Why George Osborne won’t be cheering too loudly about the latest GDP figures

 

Over on the Telegraph, Jeremy Warner recognises that the service sector growth, while welcome, shows how the recovery is still unbalanced:

In the end, the only route to sustainable, balanced growth is via gains in productivity and incomes, and regrettably, we are not yet there.

The economy has been juiced to give Coalition parties a boost ahead of the election, but with the deficit not yet tackled, glaring gaps in industrial competitiveness, severe supply side constraints, and a runaway housing market, we are still a million miles away from economic salvation.

Britain’s economic recovery: unbalanced and unsustainable

Looking through the reaction to the UK GDP, Ian Brinkley, chief economist at The Work Foundation, makes an important point — that Britain still has a productivity problem.

“The latest preliminary GDP figures confirm a firmly based, if not spectacular, recovery is underway. However, with employment growing faster than GDP the productivity figures for the final quarter of 2013 are likely to be very poor.

Preliminary GDP figures in recoveries are often revised upwards, so the underlying position may be a bit better than we think. Either way, however, we have a jobs rich and productivity poor recovery and that may not be sustainable over the medium term.”

Updated

Sticking with parliament, Ed Balls (amid much noise from the Conservative benches) is trying to ask about the economy. 

Speaker Bercow shushes them,  ’punning’ about how in tennis you get new balls after seven games (?)

Balls asks why Osborne won’t admit that living standards aren’t going up.

Osborne replies that Balls had claimed that a recovery couldn’t happen under the government’s plan, that the deficit would go up, that we’d never get growth without extra government spending.

On the other side of the house they need new crystal balls, Osborne concludes.

Very good, Chancellor, a joke about my name, responds the shadow chancellor.

They then clash about fiscal policy – Balls asks Osborne to rule out cutting the top rate of tax. The chancellor replies by attacking Balls’ plan to raise the rate to 50p, saying it’s anti-business and has been refuted by the IFS already.

Updated

Over in Parliament, MPs are holding Treasury questions — they’re discussing important issues like infrastructure spending (Danny Alexander is denying that the government is moving too slowly).

One opposition MP, Sammy Wilson, DUP member for East Antrim, just welcomed the news that the economy was growing, but asked what is happening to stimulate growth beyond London.

David Gauke, exchequer secretary, replies that employment has gone up in every region of the UK since the election.

The quarterly GDP data has become increasingly charged with political implications as the next election draws nearer (scheduled for May 2015).

Faisal Islam of Channel 4 comments:

Britain’s businesses need to stop sitting on their cash piles and crank up their investment, argues IPPR’s chief economist Tony Dolphin:

“The news that manufacturing is growing is welcome. But businesses have been sitting on a lot of cash, and the economy is still smaller than before the crisis. We need more business investment and a pick up in exports before we can truly see this economic growth as sustainable.

“Much of the recovery is based in London in the finance and business sectors but we need to see growth across the whole country. We need more sectors like the car industry taking up the baton of recovery, investing in plant and machinery to drive an increase in productivity. The jobs market held up better than expected but unless we see investment by companies in their capabilities we won’t see the growth in living standards that we want.

Dolphin is also concerned that few lessons have been learned since the crisis ripped through the financial markets and the global economy:

“Strong growth in the short-term does not mean that structural weaknesses in the UK economy that became more evident during the ‘Great Recession’ have been eliminated. Unless we move to adopt a new economic model, the recovery will prove unsustainable and bittersweet for those who do not benefit from it before it is extinguished.”

Updated

TUC: danger of unsustainable recovery

And here’s TUC general secretary Frances O’Grady’s take:

“Any return to growth is welcome, but this is the wrong kind of recovery and is two years late.

“The recovery is yet to reach whole swathes of the country or feed into people’s pay packets. This must change if the benefits of recovery are to be felt by both businesses and workers.

Unless the short-term boost provided by house prices and consumer debt is transformed into investment, rebalancing and higher living standards, the danger is that it will prove unsustainable.”

Nick Clegg: Recovery plan must be fair

Interesting comments from deputy prime minister Nick Clegg — he’s said that the task of repairing the country’s finances must be completed “fairly”.

I’ve taken the comments from PA:

“Our economy is moving in the right direction – unemployment is down and growth is up.

“The coalition Government has set Britain on the right course by repairing the country’s finances and helping to create over 1.6 million jobs in the private sector.

“But we must finish the job fairly, with further investment in jobs outside London and by cutting taxes for working people.”

The reference to fairness comes a day after the Liberal Democrats appeared to break away from the post-2015 deficit reduction plan laid out by George Osborne. Business secretary Vince Cable said further welfare cuts to save an additional £30bn in the next parliament were political and ideological commitment.

Service sector, the details…

The strongest performing part of Britain’s services sector was “Business services and finance”, which posted 1.2% growth in the last quarter.

That covers banks, insurers, technology companies, other financial firms, estate agents, and goods rental companies.

Sky’s Ed Conway just had an entertaining exchange of views with the Treasury after he argued that this showed the UK was NOT rebalancing:

Andrew Goodwin, senior economic adviser to the EY ITEM Club, reckons growth rates will slip back during 2014 because of the financial pressure on households:

The challenge now is to broaden out the recovery beyond the consumer and housing market. The enduring squeeze on real wages will limit the consumers’ ability to continue to drive the recovery forwards.

Investment and exports are likely to have improved in Q4, but not enough to drive growth forward at the pace we’ve become accustomed to. So the chances are that the pace of growth will slow a little through 2014.

Rob Wood of Berenberg Bank isn’t worried by the 0.3% drop in construction output in the last quarter, and

With all construction surveys red hot right now, construction should bounce back quickly and economy wide growth should accelerate further. There are absolutely no signs of growth slowing anytime soon. If anything, the risks are towards an acceleration.

He predicts strong growth both this year and next year, as the Bank of England’s exceptionally loose monetary policy reaps dividends:

The 2013 data show that low interest rates and a massive housing stimulus can be a very powerful tailwind indeed, offsetting headwinds to growth from factors like deleveraging. With every chance that some of the headwinds will fade this year, the monetary policy tailwind should drive UK growth higher over the next two years.

The recovery will snowball. We expect the economy to expand by 3.0% in 2014 and then 3.3% in 2015.

Stronger growth will put more pressure on the Bank to raise interest rates — although governor Mark Carney spent a lot of his time at Davos last week insisting that the UK economy isn’t strong enough yet.

Ed Balls: Vince Cable is right to express concerns

Shadow chancellor Ed Balls says he’s happy that the economy is “finally” growing. 

But, speaking on BBC News 24, he warned many people are suffering from a cost-of-living crisis with real wages still falling.

There is more to do to get a balanced strong economy, Balls says.

That’s exactly what George Osborne says, replies the BBC’s Simon McCoy. You’re in agreement with him?

No, Balls replies, He says he’s frustrated that George Osborne spent three years getting things wrong, and “choked off” the recovery.

He argues business don’t trust the chancellor, if they did they’d be investing more.

McCoy asks about Vince Cable’s comments last night about the shape of the UK economy.

Balls replies that Cable is right, and he’s reflecting the same concerns I’m expressing.

Have you spoke to each other about this?

No, he’s a grown-up politician who looks at these figures and sees a big difference between the government’s complacency and the reality, the shadow chancellor replies.

Balls adds that the risks in the global economy mean Britain needs a stronger recovery.

These are fragile times, and he’s [Cable] saying, as I’m saying, that this is not the strong sustained economy that we need.

Here’s our full news story about today’s GDP data:

UK economy grew 1.9% in 2013 – the fastest growth since 2007

The British economy grew at the strongest rate in six years in 2013, having ended the year on a strong note as the recovery became more entrenched.

The UK’s services and manufacturing sectors were the drivers of 0.7% growth in the fourth quarter, taking the annual growth rate to 1.9%, the strongest since 2007 before the financial crisis took hold.

The economy grew in every quarter last year according to the Office for National Statistics, providing a significant boost for the chancellor who has persistently argued that a burgeoning recovery is proof that his economic plan is working.

Updated

The CBI are also upbeat about prospects this year. CBI director-general John Cridland says:

The economy is growing and the recovery gathering momentum. This is good news, and we’re seeing improvement across many different sectors.

While I chew through the GDP data, our senior political correspondent Andrew Sparrow is liveblogging from parliament where top executives from Atos and G4S are being questioned by MPs over public sector reform.

Atos and G4S questioned by MPs: Politics live blog

 

Jeremy Cook, chief economist of World First, the currency exchange firm, reckons the UK ended the year in ‘fine fettle’, even though the service sector provided much of the growth, again….

“The 0.3% fall in construction output will be a concern, but I would hope that an increased level of investment throughout 2014 should reverse this.”

The government needs to do more to sustain the recovery, warns John Longworth, Director General of the British Chambers of Commerce.

Longworth said the rise in GDP confirms anecdotal evidence that UK firms are “ever more bullish”, but rising confidence isn’t enough:

 “It is of course heartening that Britain is now amongst the fastest-growing advanced economies. But more must be done to shore up the foundations of this recovery if it is to be a lasting one.

Unless we do much better on the three ‘T’s – training, transport infrastructure and trade support – our aspirations for investment at home and success around the globe cannot be achieved.

 

Updated

GDP: the key charts

This chart shows how Britain has, finally, posted four quarters of growth in a calendar year for the first time since 2007:

And this chart shows how Britain’s dominant services sector (in green) bounced back much more strongly from the crisis than industrial production (black), construction (yellow) or agriculture (blue):

 

ING: UK could achieve 3% growth in 2014

Reaction is flooding in:

ING’s James Knightley reckons that the UK could grow by up to 3% in 2014:

With business surveys, such as the purchasing managers’ indices and the British Chambers of Commerce reports indicating very strong activity across the economy it looks as though there is significant momentum at the beginning of 2014.

Employment continues to rise robustly, housing activity is very firm, confidence is on the rise, credit growth is improving and the UK’s key export market – the Eurozone – is showing some encouraging signs.

Here’s ONS chief economist Joe Grice’s official comment on today’s growth data:

“We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently.

“Today’s estimate suggests over four fifths of the fall in GDP during the recession has been recovered, although it still remains 1.3 per cent below the pre-recession peak.”

Osborne: Broadly-based growth

The manufacturing part of the UK economy grew by 0.9% in the last quarter, slightly faster than the wider industrial sector, which grew by 0.7%.

George Osborne has seized on that as a stick to smite critics (such as Vince Cable?)  who claim that he’s failing to rebalance the economy and should change his plans:

Don’t forget that construction output fell by 0.3% during the quarter – unlike in Q3 when all sections of the economy expanded.

David Cameron tweets that today’s growth figures shows that the government’s plans are working:

Today’s data  also means that the UK has grown for all four quarters in a calendar year — that’s not happened since 2008  (although the double dip was revised away, there have been occasional quarters of negative or flat growth)

Joe Grice repeated that that there is now a “rather better tone” to the UK economy, after four quarters of growth.

Grice declined to say when UK workers might finally see wages rising in real terms, but did point out that inflation has recently fallen.

 

Updated

Joe Grice explains that the 0.3% drop in construction output may be down to seasonal factors (worth remembering, though that the building sector had seen growing strongly early in the year).

Asked about the wider state of the UK economy, Grice says that “in the last year we have had more balanced growth than previously, but over the longer period we have had a divergence in the recovery.”

That’s shown by the fact that that the Service sector is now bigger than before the financial markets were convulsed by the collapse of Lehman Brothers, but construction and manufacturing are someway shy.

 

The recovery has been somewhat erratic, says Joe Grice, but it “feels like the economy now has a better tone”.

However the UK economy is still 1.3% smaller than before the financial crisis began.

 

 

Updated

The UK service sector grew by 0.8% in the fourth quarter, and Industrial output racked up 0.7% growth.

But Construction output fell by 0.3% in the October-December period.

That means the services sector is higher than in 2008.

But both industrial production and construction are around 11% smaller than before the crisis, Grice adds

 

 

Updated

On an annual basis, GDP for 2013 was 1.9% higher than in 2012, says the ONS’s Joe Grice.

That, I believe, means Britain has recorded its strongest growth for any year since 2007.

 

UK GDP DATE RELEASED

BREAKING: The UK economy grew by 0.7%  in the final three months of 2013, the ONS just announced.

 

Key event

Just a few minutes until the Office for National Statistics reveals the preliminary estimate of UK GDP for the final three months of 2013.

ONS chief economist Joe Grice will announce the data at 9.30am sharp, and then take questions from the press.

It should be broadcast live on the BBC and Sky News in the UK.

Fact for the morning, via Sky News’s Ed Conway – Poland is the fastest-growing member of the EU since the financial crisis began in 2008:

Key event

And here’s another graph reinforcing how the UK’s economy has lagged behind major rivals since the great recession - with particularly weak growth from mid-2010 to mid-2012:

 

 

What the analysts are predicting

Here’s a couple of analyst predictions about today’s GDP data (due in under 30 minutes):

Howard Archer of IHS Global Insight:

Our best bet is that GDP growth edged back to a still very decent 0.7% quarter-on-quarter in the fourth quarter of 2013 after accelerating to 0.8% quarter-on-quarter in both the third and second quarters from 0.5% quarter-on-quarter in the first quarter. This would still result in year-on-year GDP growth accelerating to 2.8% in the fourth quarter of 2013 from 1.9% in the third quarter, thereby giving the best annual growth rate since the first quarter of 2008. 

It would also result in overall GDP growth in 2013 coming in at 1.9%, which would be the best performance since 2007 and up from growth of just 0.3% in 2012. Even so, GDP in the fourth quarter of 2013 would still be 1.3% below the peak level seen in the first quarter of 2008.

Kit Juckes of Societe Generale [SG]:

The market looks for a 0.7% gain, SG for a 0.8% increase that takes the annual growth rate up to 2.9%, the fastest since Q4 2007. Sterling is a little stronger again today. Positive economic surprises have supported the currency and triggered a sharp re-pricing of the interest rate outlook, despite Mr Carney’s best efforts to keep that in check.

The pound has risen slightly this morning, touching $1.66 against the US dollar.

James Ramsbottom, chief executive of the North East Chamber of Commerce, just put his finger on the underlying issue with the British recovery – it doesn’t feel like a recovery for most of us, yet anyway.

Speaking on the BBC’s Today Programme, Ramsbottom said that manufacturing had “sustained” his region’s economy (Nissan have a big plant in Sunderland) while construction has only recently picked up.

“But for many people on the street, it doesn’t feel like it’s changed,” Ramsbottom added.

Rob Marshall, who runs a web design firm, also cautioned that he didn’t feel any better about business conditions than a year ago. But he has hired more staff since founding his firm in 2009, growing from four staff to 13.

Duncan Weldon, the TUC’s senior economist, makes four important points about today’s data (in this blog):

It’s provisional data, it won’t tell us much about  living standards, UK productivity may still be falling, and Britain has lost a lot of ground against most comparable countries since the crisis began:

 

Another point to watch will be which sectors of the UK economy did best – services, construction or manufacturing.

Weldon says:

Whilst the top line figure will tell us something about the overall pace of the recovery, the sector breakdown will tell us about its balance.

Updated

Back to UK GDP. It’s worth remembering that, despite the decent growth seen so far this year, Britain’s economy has still not reached its pre-crisis peak. Three months ago it was still 2.5% smaller than its peak in 2008.

 

 

The ONS reported last month that the UK grew by 0.5% in the first quarter of 2013, then 0.8% in the second and third quarters.

 

An important development in emerging economies this morning – India surprised the markets by announcing a surprise rise in interest rates, from 7.75% to 8%

The move is designed to underpin the rupee, and also to target India’s inflation rate. Central Bank chief Raghuram Rajam said he might be able to cut rates again in future once inflation has been pegged back. 

The unexpected move comes hours before the central bank of Turkey (also under pressure in the recent emerging market turmoil) meets to discuss monetary policy. Many analysts expect a rate hike, or other measures, to prevent the Turkish lira being further routed.

A reminder that while Britain’s recovery continues, there’s the potential for upheaval elsewhere….

CBI sees “real upsurge” in output

The CBI has fuelled confidence in Britain’s economy by declaring this morning that business output in the private sector is rising at the fastest pace since the collapse of Northern Rock.

Ahead of this morning’s GDP data, the employers body said the economic outlook looked bright. The proportion of firms reporting higher output over the last quarter has hit its highest level since Autumn 2007.

Katja Hall, the CBI’s chief policy director, said:

A picture is unfolding of a real upsurge in output across much of the UK economy.

Many firms in many sectors are feeling brighter about their prospects than they have for a long time, showing the recovery is gaining traction.

UK GDP data to show recovery continued

Good morning, and welcome to our rolling coverage of events across the economy, the financial markets, the eurozone and the business world.

Britain’s economic recovery is centre-stage today, with new data likely to show that the UK has recorded its strongest year since being rocked by the financial crisis six years ago.

Preliminary GDP data for the final three months of 2013 will be unveiled with a flourish by the Office for National Statistics at 9.30am GMT. Economists expect another decent quarterly growth, with the economy growing by around 0.7%-0.8% (estimates vary, as usual).

That would mean annual growth of around 1.9% — which would be the best performance since 2007. 

Caveats abound, of course. Many experts fear that Britain has failed to rebalance its economy over recent years, with the current recovery based on the rickety framework of consumer spending and the housing recovery. A very British recovery, in other words.

The business secretary Vince Cable even threw his weight behind this argument last night, warning that the “shape” of the recovery was less than ideal.

Cable said:

A real recovery is taking place

The big question now is whether and how recent growth and optimism can be translated into long-term sustainable, balanced recovery without repeating the mistakes of the past.  We cannot risk another property-linked boom-bust cycle which has done so much damage before, notably in the financial crash in 2008.

Cable also appeared to be moving the Liberal Democrats away from George Osborne’s plan of further cuts beyond the election to eliminate the deficit — more here:

Vince Cable undermines chancellor with ‘wrong sort of recovery’ message

But there are signs that the chancellor’s March of the Makers hasn’t come to an abrupt halt, such as rising orders in the manufacturing sector.

Britain is among the first countries to report GDP data for the last quarter, so today’s preliminary reading could give some clues to how the global economy fared at the end of 2014.

I’ll be tracking the UK GDP data, and economic reaction to it, along with other news through the  day.

 

Updated

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In the trading room today: USD Outlook ahead of Next Week’s FOMC Meeting. As we approach the Federal Open Markets Committee meeting which will steal the market’s attention in the week ahead, we explore what could be the next move by the Fed’s and examine its potential impact on the U.S. dollar, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the jump higher in the EUR/USD currency pair, we continue to monitor the rally of the GBP vs USD, we note the correction in the USD/JPY pair, we highlight the market’s reaction to the Euro-zone Composite PMI, the U.S. Jobless Claims and Existing Home Sales, we discuss new forecasts from Rabobank and UBS, and prepare for the trading session ahead.

In the trading room today: Is the GBP Rally vs USD Sustainable? Following the Bank of England’s meeting minutes coupled with yet another positive employment report from the U.K., we take a close look at the GBP and ponder if the pound sterling’s rally against the USD and other currency majors has further room to go, we analyze the bullish move in the GBP/USD currency pair, we keep an eye on the resilience of the EUR vs USD, we note the pressure on the CAD, we highlight the market’s reaction to the Bank of Canada interest rate announcement, the Bank of England Meeting Minutes, and the U.K. Jobless Claims and Unemployment Rate, we discuss new forecasts from Toronto Dominion Bank and HSBC, and prepare for the trading session ahead.