UK Gross Domestic Product - Economic Data Preview

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.