The final revision of UK Gross Domestic Product is expected to reveal the economy shrank -2.1% through the first quarter, a greater contraction than the originally-reported -1.9% decline. In annual terms, GDP is expected to have shrunk at a pace of -4.3%, the fastest in at least 53 years. The most recent GDP forecast from NIESR, a think tank, suggested the turmoil may slow in the second quarter of the year, predicting that March was “the trough of the depression, with output rising in April and May.” A validation of such an outlook in the forthcoming data would surely lift a great deal of pressure from the shoulders of policymakers who have effectively exhausted most stimulus options. Indeed, the government is unlikely to offer much more of a boost with the fiscal gap expected to reach a whopping 14% of GDP by next year, while the central bank has already slashed rates to a meager 0.5% and embarked on quantitative easing. On balance, consensus economic growth forecasts suggest that the UK will trail behind the US but outpace the Euro Zone through the end of 2010, suggesting the Bank of England will follow the Fed but lead the ECB in lifting interest rates as the recovery takes hold. All told, this points to a bearish bias for both GBPUSD and EURGBP in the months ahead.

German labor-market figures are also on tap, with expectations calling for the Euro Zone’s largest economy to shed 45k jobs in June to push the Unemployment Rate back to a 16-month high at 8.3% after the metric slipped to 8.2% in the previous month. Job losses will weigh on consumer spending, the largest contributor to overall economic growth, keeping a lid on any substantive recovery in GDP growth in the months ahead. Indeed, the latest OECD forecast calls for output to shrink by a whopping -6.1% this year. The prospect of deepening recession and an increasingly credible deflationary threat has boosted expectations that the European Central Bank will cut interest rates later this week, with overnight index swaps suggesting the market now sees a 56.5% chance of a 0.25% reduction.

Rounding out the session, the UBS Consumption Indicator that aims to forecast the trend in private spending in the coming 3-4 months is likely to fall to a fresh 4-year low in May as the pace of unemployment continues to push higher, ticking up to a seasonally-adjusted rate of 3.5% in the same period for the first time since March 2006.

This entry was posted on Monday, June 29th, 2009 at 11:33 pm and is filed under British Pound, Currency Trading, Economic Indicators, Economy, Euro, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.