Sterling is Overvalued as UK Economy Grows

In the second quarter of the year, GDP showed growth in line with consensus at 0.7% a quarter – equating to 2.8% a year. But the IMF recently warned the pound was overvalued

Andy Brunner 7 August, 2015 | 4:14PM

The UK economy continues to demonstrate strong underlying growth in domestic demand led by an acceleration in household consumption. Expenditure data for the second quarter will not be available until the second estimate of GDP at the end of August but strong services and relative manufacturing weakness suggests the growth trend continued. Forecasts for the second half of the year remain in a 2.5-3.0% range.

Background and Recent Trends

In the second quarter of the year, GDP showed growth in line with consensus at 0.7% a quarter – equating to 2.8% a year. Following strong gains in both April and May, retail sales fell 0.2% month on month in June but were 4.2% ahead year on year. While volatile from month to month, sales have now increased on a rolling three month basis for the longest period since records began nearly 30 years ago.

While most indicators were positive, the unemployment rate actually rose slightly to 5.6% in the 3 months to May as employment fell by 67,000.

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About Author

Andy Brunner

Andy Brunner  is Head of Investment Strategy, Morningstar UK

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