The U.K. first quarter GDP was revised lower than the preliminary reading. Data show that the economy contracted by 0.3 percent versus a previous estimate of a 0.2 percent drop. The main cause was the sharpest fall in construction output in three years, the most since the first quarter of 2009.
The disappointing data could increase the case for more quantitative easing by the Bank of England, since the downward revision to GDP comes after weak retail sales data and a downward trend in CPI. Meanwhile worrying German survey data today and strengthening headwinds from the euro zone all suggest the case for more QE.
The pound fell in a knee-jerk reaction after the data, with GBPUSD dropping over 20 pips to 1.5644 from where it was at 1.5669 before the news at 08:30 GMT.
Comments from Nikesh Sawjani, Economist at Lloyds:
“Looking forward … As a precursor of (second-quarter figures) it’s not looking too great.
“The (Bank of England) minutes suggested the committee is firmly leaving the door open on more QE. The trigger point could be further weakness in the euro or lack of action from EU policy makers.
“(The GDP revision) probably makes QE a little bit more likely. I think it does raise the prospect of QE marginally, but to be honest i think it was on the table anyway.”