UK Economy posted good growth

UK Economy posted good growth

On Friday 25th October we saw a 0.8% rise in GDP for the third quarter of 2015 meaning the UK economy posted its strongest growth since the second quarter of 2010. On a year-on-ycar basis, the UK economy is 1.5% larger than a year ago. This was led by a 0.7% increase in the UK's service sector. Strong job creation over the summer has cut the jobless rate to 7.7% from 7.8% which has surprised Bank of England officials, meaning that they may have to revise their forecasts for growth, unemployment and inflation.

The recovery has largely been driven this year by increased consumer spending and falling household savings. Cheap financing has encouraged consumers into the shops, car showrooms and estate agents. The housing market is surging, retail sales rose at their strongest rate for five years in the third quarter and car sales were up more than 10% year on year in September. It would be better if this was an exports and investment driven recovery, but consumption led growth is a good start. 

Earlier in lhe week, wc saw the Bank of England's Monetary Policy Committee voting unanimously at 9-0 to keep quantitative easing at i'375bn and keep interest rates low.

In terms of their view on the economic recovery, they estimate that growth in the second half of the year would remain around 0.7% a quarter or a little higher which is stronger than expected from August's inflation report. The BoEalso fell that the recent reduction in the unemployment rate to 7.7% was reducing slightly faster than expected.  Despite  the  positive outlook JI failed lo have much effect on the pound.

The US dollar continued lo slide to the weakest level since February as investor appetite for riskier assets rose on bets the Federal Reserve will delay tapering stimulus into 2014. The U.S. dollar index, which monitors (he greenback against 10 other major currencies, fell by 1% last week commencing Monday 21st October.

Data from the Labour Department showed that the official unemployment rate fell to 7.2% in September, non-farm payroll figures revealed that only 148.000 new jobs were added in the same month instead of an expected addition of 180.000. The data suggests that the US economy was weakening even before the government shutdown and as stated above, will delay the Fed's decision to taper its monetary policy programme.

Friday's durable goods orders data and the expectation that September retail sales will fall is another indicator that risks for the economy are still skewed to the downside and the manufacturing cycle doesn't seem to have gained momentum. The Fed has promised not to raise rates until unemployment drops to at least 6.5%, provided inflation looks set to stay under 2.5%. The jobless rate stood at 7.2% in September.

On Tuesday 29th October. we saw the Reserve Bank of India decide to raise interest rates 7.75% in an attempt to fight inflation and despite sluggish growth. India's annual rate of inflation rose to 9.84% in September from 9.52% in August. Growth slowed in the second quarter to 4.4% on an annual basis.