The pound soared today as dealers bet against the Bank of England printing more money next week in the wake of the UK’s spurt out of recession between July and September.
The surprise 1% growth in the third quarter sent sterling jumping more than a cent against the dollar to $1.6135 immediately after the release of the Office for National Statistics’ initial estimates. It also leapt half a cent against the euro to a session-high of €1.2399.
Experts had been split over whether the Monetary Policy Committee would extend its programme of quantitative easing, currently standing at £375 billion, to pump more stimulus into the economy. But the betting hardened against such a move today — in contrast to the US Federal Reserve’s reaffirmed commitment to QE last night — bolstering sterling.
Andy Scott, premier account manager at foreign currency exchange broker HiFX, said: “This must now pretty much kill any expectations that the Bank of England will announce more monetary easing when they meet next month which should benefit sterling against many major counterparts whose central banks are pumping money in, or cutting interest rates.”
The breakdown of the figures revealed storming 1.3% growth for the UK’s powerhouse services sector, accounting for three-quarters of the economy. This, along with a 1% advance by the nation’s industrial sector, more than offset more woes for Britain’s builders, where output shrank 2.5%.
Business reaction to the figures was largely favourable as the British Chambers of Commerce said “it will give many businesses the confidence to invest”. KPMG chief economist Andrew Smith said: “It’s not exactly a recession, but not exactly a recovery either. While technically we are now out of the double-dip recession, it would be unfortunate if attention was distracted away from the big picture. Output continues to do no more than bounce along the bottom as it has for the past two years.”
