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UK GDP going through summer slowdown - ING

FXStreet (Delhi) – James Knightley Senior Economist at ING, notes that the UK business surveys suggested that growth slowed in 3Q15 with sterling strength and external weakness hurting exports and a wet summer dampening consumer spending.

Key Quotes

“This is mainly due to the deterioration seen in business surveys, such as the purchasing managers’ indices. There was also significant concern about emerging market growth in the quarter and exports are likely to have suffered, particularly with sterling looking strong on a trade weighted currency basis. There is also the potential for the bad weather in the summer to have negatively impacted consumer activity, which will add to downside risks for the service sector component – remember we only get an industry breakdown at this stage.”

“However, we see this as a temporary setback. The economy is creating jobs again in significant numbers, wages are rising nearly 3% in real terms and consumer confidence is at high levels. This suggests that the domestic growth story looks good.”

“Inflation is also set to start rising as the falls in commodity prices seen late last year drop out of the annual comparison and rising domestic costs (most obviously wage costs) are increasingly passed onto the end consumer. Consequently, we continue to look for a rate rise in 2Q16 – after the Federal Reserve, but well ahead of market expectations of late 2016/early 2017.”

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