GBP: cyclical support remains strong but structural concerns still evident – BTMU

FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, explains that the latest economic data releases from the UK have continued to highlight that cyclical support for a stronger pound continues to remain in place.

Key Quotes

“Economic growth last year was revised upwards to an even more robust expansion of 2.8%. The UK economy appears to have continued to expand strongly early this year as low inflation has helped to boost consumer spending.”

“It was also encouraging that the UK manufacturing PMI survey continued to firm raising by 0.4 point to 54.4 in March”

“Strengthening external demand from the euro-zone will likely more than offset the negative impact from a stronger pound.”

“However, two of the UK economy’s main structural concerns still remain evident. It was revealed yesterday that output per hour decreased by -0.2% in Q4 leaving the annual rate of expansion at just 0.3%. The ONS described the persistent weakness in productivity as “unprecedented” which remains slightly lower than in 2007. Growth is being driven by a strong employment growth.”

“The latest current account report also revealed that the UK economy is running a record current account deficit of 5.5% of GDP in 2014.”

“Both structural issues highlight that pound strength may not prove sustainable in the medium to long run. However, the strong cyclical momentum of the UK should remain supportive for a stronger pound in the year ahead.”