British Economy Still Limp Despite Signs of Life

Posted by: Stanley Reed on October 23

Today’s poor GDP numbers come as a reminder that the British economy is still in the doldrums. The Office for National Statistics reported that the economy contracted 0.4% for the quarter through Sept. 30, compared to the previous quarter. That’s the sixth consecutive down quarter. Most economists thought the quarter would be positive. The year-on-year decline was 5.2%.

The good news is that the rate of decline is declining, but this release, along with a weak retail sales figure yesterday, may chill some of the recent euphoria that has sent sterling sharply up against the dollar. Sterling declined today on the release to $1.64. It was also down against the euro.

The stock market shrugged off the news with the FTSE 100 up more than 1% in morning trading on Oct. 23. Investors may interpret poor economic news as good for stocks because the bad data will make the Bank of England less likely to consider raising interest rates and more likely to continue with its purchases of bonds known as “quantitative easing.”

To this observer, the economy feels somewhat better. Cab drivers, usually a good indicator, report that business is picking up. House prices have been rising. And a leading contemporary art dealer exhibiting at the Frieze art fair said that the market for her wares had been improving since May. Of course, none of this is much consolation to those who continue to lose jobs.