httpvh://www.youtube.com/watch?v=k2BvV3PHQDI

It’s growth Jim but not as we know it. The 0.5% increase in Q1 GDP makes up for the poor 4th quarter but to all intents and purposes means that the UK has not grown an iota in the past 6 months. Yesterday’s figure showed us bounce backs in transport since the destruction caused by the winter snow while services and manufacturing and services have remained buoyant. The main laggard has been construction, a historically volatile series,  although mortgage approvals published at the same time as today’s GDP release show that they have risen for the 3rd month in a row.

Sterling rallied sharply after the announcement as it seemed that traders were betting heavily on a below consensus number and were caught out. We believe that this does little to change market perceptions on interest rate rises for the UK economy and we therefore keep our prediction for an August hike.

The other main headline in markets yesterday was the press conference given by the Fed Chair, Ben Bernanke. No clues were given as to when the Fed will commence with monetary tightening, arguing  that they remain focused on the recovery and wish to see the jobs market show signs of improvement. On growth he said he expected Q1 GDP to be a “relatively weak number,” probably less than 2% but the pace of recovery to pick up through 2011, ’12 and ’13.The dollar sank across the board as he spoke as we had expected moving above the 1.67 mark against sterling and the 1.48 mark in EURUSD terms. US GDP is released at 13.30.

Ben Bernanke has given the green light for further gains on equity markets with his ‘risk on’ speech sending the American markets up before their close last night. Asia and Europe have followed this morning and commodity prices have continued as well with gold hitting $1533 an ounce,

Latest exchange rates at time of writing