httpvh://www.youtube.com/watch?v=J4PdPOXtR-U

UK GDP surprised us yesterday by hitting consensus of a rise of 0.2% and it also looked like traders were surprised as well as the pound leapt higher on what was an essentially “as expected” number. This tells us that many speculators were looking for the figure to disappoint and had large bets on sterling scything lower.

Politicians were quick to either point out or gloss over the UK’s shortcomings yesterday. It’s not a secret that the second quarter has been a tough one for all industries and the slowdown in growth seen in the PMIs for the manufacturing and services industries forewarned us of this disappointment. 0.2% is disappointing growth but growth all the same and the extra factors such as the Royal Wedding and the Japanese tsunami will have had an impact. We are worried about the 0.3% fall in manufacturing over the past 3 months which shows that industry is not able to take advantage of the weak pound and exports, while up, are still not giving us what we need.

While this is disappointing growth, it is still growth but will not be enough to satisfy those who believe that the government is currently on the wrong course and that a deficit reduction plan is causing unnecessary pain. The fact is that other economies may be growing at a faster point at the moment but austerity measures may need to be enacted in the future which will slow this.

Some of the comparisons that were made yesterday were unfair I believe as well; we have not had 2^nd quarter GDP figures from Europe and its constituents yet and given the PMIs from these parts in the past 3 months have shown contraction while the UK’s have slightly expansionary. We expect some real shockers from the Eurozone in the coming weeks.

The other comparison that got my back up a bit was why are we not growing like Germany? There is one simple answer for this; manufacturing. The Germans are world-renowned quality engineers whose export practices have in part caused the euro crisis, but find most of their profits in oil exporting countries. When the price of oil is as high as it is at the moment (Brent is $118 a barrel) those who pull it out of the ground have more money to throw around and they love a German export. We at World First have long argued for an increase in our manufacturing base but these things don’t happen overnight.

The other main story is of course the debt negotiations in the US which seem to be having the same success rate as I did at the “International Jelly Nailin’ To A Wall Olympiad”. I still believe that a plan will be thrashed out by the deadline but if the Americans love anything it’s a bit of drama. From my limited knowledge of Congress I would expect that any bill that needed to be passed on Tuesday must be heading through Congress by today/ tomorrow at the latest. The dollar has remained weak overnight and equity futures are also hamstrung by this political uncertainty. The sticking point seems to be the timing of the bill i.e. how long it will last. Republicans only want the extension to last a year, presumably so they can shutdown the government 3 months before a Presidential election and beat Obama senseless in the run-in of the campaign.

The economic releases calendar now quiets down for the rest of the week but we do have a slew of German inflation releases this morning that could give us some direction to the ECB’s thoughts. Christian Noyer, Banque de France governor, created a bit of confusion yesterday after apparently signaling another ECB interest rate rise is in the pipeline after signaling that they were using ‘strong vigilance’ on inflation. This was then later changed to ‘strong alertness’ but even so, it shows that the ECB is still looking for further monetary policy movements soon.

Latest exchange rates at time of writing