British GDP confirmed at 0.2% in March quarter

Fundamental Analysis

Key highlights of the week ended June 30

United States

The US economy expanded at a stronger-than-initially-expected pace in the March quarter amid higher consumer spending. The Commerce Department reported on Thursday that the domestic economy grew at an annualised pace of 1.4% in the Q1 of 2017, following the preceding quarter's expansion of 2.1% and surpassing the prior estimate of 1.2% growth. Thursday's data showed that the Q1 growth figure's revision was driven by stronger consumer spending, which climbed 1.1% during the reported period, compared to the preliminary reading of a 0.6% increase. However, that was the weakest reading since the Q2 of 2013. Despite the GDP upward revision, the Trump administration's plan to lift annual US economic growth to 3% remained challenging. As to the June quarter, weak retail sales figures, sluggish manufacturing production growth and low inflation suggested that the economy failed to regain positive momentum in the Q2. Other data released on Thursday showed that the number of Americans filing for jobless aid rose 2K to 244K in the week ended June 23, whereas analysts anticipated a fall to 241K.

United Kingdom

The Bank of England Governor Mark Carney said on Wednesday that the Monetary Policy Committee might need to start raising interest rates soon, adding that the BoE's interest-rate decision would be discussed in the next few months. Carney's unexpectedly hawkish comments pushed the Sterling to its new session highs. In the meantime, the GBP/USD hit its highest level since the June 8 election. Earlier, Mark Carney stated that it was not yet the time to step on the path of interest rate hikes despite surging inflation.
The UK economy showed a slow growth pace in the first quarter of the year, the weakest performance among European and G7 countries. The ONS reported that the country’s GDP growth matched previous estimates of 0.2% in the Q1 of 2017, compared to a 0.7% increase in the Q4 of 2016. Both business services and construction sectors contributed to the Q1 UK economic expansion. The British economy, which successfully withstood in the Brexit vote aftermath, started to lag behind other developed countries. Economic growth in the Q1 weakened amid a slowdown in the consumer-focused industries, such as accommodation and retail sales, as well as diminished household spending power.

Canada

The Bank of Canada Governor Stephen Poloz reported on Tuesday that interest rate cuts made in 2015 after the sharp oil price drop had done their job. Back in 2015, the Bank's key interest rates were cut twice but a distinctly more hawkish tone recently from policymakers in recent days has boosted the probability of a rate hike by the end of this year. The chance of a July rate hike climbed to 43% on Wednesday from 30% the day before. Poloz said that the country's major regions had been experiencing strong growth, however, the economic development phase differed from place to place. Canada’s economic output posted the sixth straight month of expansion in April, contributed by improvements in most sectors. Statistics Canada reported on Friday that the country’s GDP rose 0.2% in the fourth month of the year, following March’s 0.5% gain and matching analysts’ forecasts. The increase was mainly driven by services activity, with a 0.5% advance in both retail sales and wholesale trade. The report showed that 14 of 20 sectors expanded in April. On a yearly basis, the Canadian economy expanded 3.3% in the reported month, its strongest growth pace in almost three years. The largest annual increase of 5.6% was registered in the warehousing and transporting sector, supported by a rise in rail transport. Strong data suggested the Bank of Canada would be more optimistic amid the country’s strong economic performance.

GBP

“Fresh official data reveal how the economy slowed sharply at the start of the year as higher prices squeezed households.”

— Chris Williamson, IHS Markit

The UK economy showed a slow growth pace in the first quarter of the year, the weakest performance among European and G7 countries. The ONS reported that the country’s GDP growth matched previous estimates of 0.2% in the Q1 of 2017, compared to a 0.7% increase in the Q4 of 2016. Both business services and construction sectors contributed to the Q1 UK economic expansion. The British economy, which successfully withstood in the Brexit vote aftermath, started to lag behind other developed countries. Economic growth in the Q1 weakened amid a slowdown in the consumer-focused industries, such as accommodation and retail sales, as well as diminished household spending power. Consumers’ real income faced the most prolonged squeeze as price growth beat wage growth. Overall, trends in the main areas of the country’s economy are set to be crucial for the Bank of England to decide whether to raise its key interest rates in the second half of the year or not. However, higher demand for UK exports and stronger manufacturing activity can potentially offset weak consumer spending.

CAD

“Canadian growth is slowing from a blistering end to last year and start of 2017, but is still in healthy enough territory to chew up what’s left of economic slack.”

— Nick Exarhos, CIBC

Canada’s economic output posted the sixth straight month of expansion in April, contributed by improvements in most sectors. Statistics Canada reported on Friday that the country’s GDP rose 0.2% in the fourth month of the year, following March’s 0.5% gain and matching analysts’ forecasts. The increase was mainly driven by services activity, with a 0.5% advance in both retail sales and wholesale trade. The report showed that 14 of 20 sectors expanded in April. On a yearly basis, the Canadian economy expanded 3.3% in the reported month, its strongest growth pace in almost three years. The largest annual increase of 5.6% was registered in the warehousing and transporting sector, supported by a rise in rail transport. Strong data suggested the Bank of Canada would be more optimistic amid the country’s strong economic performance. Moreover, the economy is expected to reach full employment by the end of the year, which is one more reason to lead to a rate hike. Stephen Poloz, the BoC Governor, pointed out that two previous rate cuts did their job and the economy was now on a firmer ground despite lower oil prices.

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