Forex Flash: BoE comfortable in holding policy after UK Q1 GDP surprise – TD Securities

FXstreet.com (Barcelona) - Today’s publication of UK Q1 GDP allowed the UK economy to escape the stigma of the dreaded “triple-dip” recession, with a +0.3% quarterly expansion and beating consensus expectations of +0.1%. “The unexpected strength came from the services side of the economy with an inexplicable +0.6% aggregate gain there, and a particularly notable 1.4% increase in the transportation and communication sector, which is completely at odds with the reports of poor weather disrupting the distribution channels”, wrote analyst Jacqui Douglas, adding that this upside surprise seems to be one that will stick, rather than pull expectations out of Q2, “and we would expect GDP to linger around this same pace of growth in the second quarter”.

The BoE is now more comfortable with keeping policy on hold at its next meeting in two weeks, but markets were already receiving the hint that this would happen as yesterday’s announcement about expanding FLS indicates that the BoE would hold off on expanding QE and target its policy measures toward unclogging credit channels. “The overall growth picture still isn’t fantastic, as this data point only really just undoes the damage from the -0.3% contraction in Q4 2012, leaving growth flat on a two-quarter basis. But it was still significantly better than what markets were looking for, and may help to instil a little more confidence in the prospects for a UK recovery”, Douglas continued.