Currency watch: Tough times roll on

UK GDP caused surprise this week by hitting 0.2%.

It looked like traders were startled too, as the pound leaped higher on what was essentially an “as expected” number.

This tells us that many speculators were looking for the figure to disappoint, and had made large bets on sterling scything lower in the lead-up to the announcement.

Politicians, too, were quick to either point out or gloss over the UK’s shortcomings.

It’s no secret that the second quarter has been a tough one for all industries and the slowdown in growth seen in the purchasing managers indices (PMIs) for the manufacturing and services industries forewarned us of this impending disappointment.

0.2% is unsatisfactory growth, but it is growth all the same and the extra factors such as the royal wedding and the Japanese tsunami will have had an impact on this result.

At World First, we are particularly worried about the 0.3% fall in manufacturing over the past three months.

This shows that industry has not been able to take advantage of the weak pound.

Exports, while up, are still not giving us what we need. Despite the chancellor’s best efforts to put a positive spin on this figure, it will not be enough to satisfy those who believe that the government is currently on the wrong course, and that the deficit reduction plan is causing unnecessary pain.

The fact is that other economies may be growing at a faster rate at the moment, but austerity measures may need to be enacted in the future which will slow this growth down.

Some of the comparisons that were made this week were unfair as well. We have not yet had 2nd quarter GDP figures from Europe and its constituents.

The PMIs from these parts in the past three months have shown contraction, while the UK’s have been slightly expansionary.

As a result we can expect some really shocking figures from the Eurozone in the coming weeks.

Jeremy Cook is chief economist at World First foreign exchange