GDP growth in the UK and USA was revised downward on Friday, increasing concerns about a potential return to a double dip recession on both sides of the Atlantic. In the UK the reduction in growth for the fourth quarter of 2010 was revised down to negative 0.6%, from the first estimate of negative 0.5%. The Office of National Statistics believed that much of the weakness arose because of December’s poor weather, although many statisticians estimate that the economy would have shrunk by 0.1% anyway. The revised figures showed that services, construction and public sector all contracted, though the industrial sector grew. In the US GDP was revised down to 2.8% from the first estimate of 3.2%
Attention has now turned to the surging oil prices, as Middle Eastern unrest unsettles markets. Brent crude oil leapt to its highest level since August 2008 as more than a quarter of Libya’s oil output has been cut. Investors are becoming concerned that the civil uprising in Libya could spread to other large oil producers – with Saudi Arabia being the worst case scenario. High oil prices have hit the US Dollar which is now trading at its lowest level against Sterling since December 2009 and against the Euro for four months.
Elsewhere markets are expecting the Reserve Bank of New Zealand to reduce interest rates in their next meeting. This is clearly a response to last week’s tragic Earthquake, which has had a massive economic impact. Some senior economists are expecting a reduction of 50 bps to 2.5%.
This week’s data will be notable for the European Central bank interest rate decision which comes out on Thursday. The rate will stay at 1% but the tone of the press conference afterwards will be of interest. In additional European unemployment figures released on Tuesday and retail sales released on Thursday will give the market some direction. It is a slow week for UK data, but jobless claims and ISM manufacturing data released in the US will be keenly watched.
