|Quarter over Quarter||0.5%||0.6%||0.5%|
|Year over Year||2.7%||3.0%||2.7%|
The final estimate of UK growth last quarter showed the real economy performing rather better than previously thought. Hence, real GDP is now put 0.6 percent above its fourth quarter level, a tick higher than last time, while the yearly change was boosted by 0.3 percentage points to 3.0 percent, equalling its fastest pace since the second quarter of 2006.
The main factor boosting the headline data was net trade which, with exports increasing 4.6 percent and imports up 1.6 percent, now adds some 0.9 percentage points to the quarterly change in total output. Elsewhere in the national accounts, household consumption rose a healthy enough 0.6 percent but gross capital formation was down 2.8 percent within which fixed investment dropped 0.6 percent. General government final expenditure dipped 0.2 percent and business inventories subtracted 0.4 percentage points.
Despite the favourable adjustment to economic growth the current account deficit for calendar 2014 still widened out from Stg76.7 billion in 2013 to a record Stg97.9 billion (5.5 percent of GDP). The fourth quarter shortfall actually narrowed but the rising trend in the red ink suggests that the UK economy is still badly unbalanced and leaves current levels of the pound looking increasingly vulnerable medium-term.
Still, in terms of growth the UK economy has been outperforming its Eurozone counterpart for some time and, despite tentative signs of a recovery across the Channel, looks set to do so again this quarter.
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The first, or provisional, estimate will only include a breakdown in terms of the main output sectors. Subsequent estimates will provide details of the key GDP expenditure components.
GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.
Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.
Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth. For example, if the UK reports that the consumer price index has risen more than the Bank of England's 2 percent inflation target, demand for sterling could decline. Similarly, when the Bank of England lowers interest rates, the pound sterling weakens. (Currency traders also watch the interest rate spread between countries.)