Prospect of interest rises in the UK grows - ING

By FXstreet.com | July 28, 2014 AAA

FXStreet (Łódź) - James Knightley from ING observes that UK output is back above its pre-crisis levels and with upward GDP revisions due at the end of September this points to shrinking spare capacity in the economy and the growing prospect of interest rate rises.

Key quotes

“Last Friday saw UK 2Q14 GDP growth come in at 0.8% QoQ or 3.1% YoY, in line with market expectations.”

“This was the fastest rate of annual GDP growth since 4Q07 and means that the UK economy has finally regained all of the lost output from the recession.”

“The Bank of England believe on their measures that the economy grew 0.9% in 2Q and expect 1Q GDP to be eventually revised up to 0.9% from the 0.8% currently reported.“

“Furthermore, there are going to be significant revisions to the UK GDP statistics this September with a briefing paper released in June suggesting that the recession may have been shallower than originally thought – to the tune of around 1% of GDP.”

“The key outcome from all this will be to suggest that the UK has less spare capacity than previously thought and so inflation pressures could start to build earlier than currently forecast by the BoE.”

“As such, it is likely to support our view that the BoE will end up tightening monetary policy sooner rather than later with November being our favoured date for the first rate hike.”

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