The pound rose again against both the euro and the dollar

The pound rose yesterday against both the euro and the US dollar following the latest batch of data out of the UK economy and fresh comments from the Bank of England regarding future interest rate movements.

The Office for National Statistics (ONS) reported that UK gross domestic product grew by 0.8% during the first quarter of 2014, slightly short of the 0.9% rate expected but a faster rate of growth than the 0.7% rate reported for the fourth and last quarter of 2013. It is also the sixth consecutive quarter of expansion. In a year, UK GDP is 3.1% higher over the first three months of the year in comparison to the first quarter of 2013.

Chris Williamson, Chief Economist at Markit commented that "Today’s data will not affect policy. After all, the Bank of England’s economists had pencilled in 1.0% GDP growth in the first quarter, yet not one member of the Monetary Policy Committee saw any need to tighten policy at the latest meeting. However, such unanimity is surprising given the strength of the economy, and it would be even more surprising if discussions at the MPC did not start to heat up in coming months. Forthcoming revisions to GDP could in fact mark a turning point in the Bank’s policy guidance."

Meanwhile, the European Commission reported that the economic sentiment index (ESI) for the UK has risen from a reading of 112.8 in March to 119.5 in April with the largest gains seen in the sub-index for the retail trade (possibly due to impact of the late Easter) and the industrial sectors.

In addition, UK consumer confidence has risen to a reading of 5.7, its highest level since April 1998.

Dr. Howard Archer, Chief UK and European Economist at IHS Global Insight commented that "consumers have become more optimistic overall recently about their future financial situations and happier about their personal finances over the past 12 months".

Finally, Ian McCafferty a member of the Bank of England’s (BoE) Monetary Policy Committee (MPC) said yesterday that in his opinion, the BoE should not wait to raise the UK bank base rate before it is too late if it wants to carry out its plans for a gradual pace of increases. The UK bank base rate has been stuck at its historic low of 0.5% since March 2009.

McCafferty said "A gradual trajectory for rates can be ensured only if the first rate rise is not held back, such that we start the normalisation process before the economy reaches effective capacity constraints, so that inflation expectations and pressures are kept well in check".

A report by credit ratings agency Standard & Poor’s, the Case-Shiller index for house prices in the 20 largest US cities showed a rise of 12.9% year-on-year during the month of February, in line with analysts’ expectations but this failed to support the dollar which continues to trade at the very bottom end of a 4 and a half year trading range against the pound.

The euro softened after slightly worse than expected German inflation data where the HICP inflation figure came in at a worse than expected 1.1% in April, shy of the 1.3% figure expected by analysts. Euro zone inflation data is due out later today.