Thu Mar 29 03:30:00 CDT 2018

Consensus Actual Previous
Quarter over Quarter 0.4% 0.4% 0.4%
Year over Year 1.4% 1.4% 1.4%

Quarterly economic growth was unrevised at 0.4 percent for the final three months of 2017, a tick short of the third quarter outturn. The annual expansion rate similarly matched last month's estimate of 1.4 percent but was also unchanged from its July-September reading.

Amongst the GDP expenditure components, household consumption still shows a 0.3 percent quarterly gain and gross fixed capital formation a 1.1 percent rise. Within the latter, business investment was revised up from flat to 0.3 percent. However, government consumption was trimmed a couple of ticks to 0.4 percent.

Meantime, net foreign trade was slightly less negative than previously thought. With exports falling a sharper revised 0.9 percent and imports increasing a shallower revised 0.4 percent, the net drag was 0.4 percentage points versus the 0.5 percentage points reported last time. Even so, the nominal current account shortfall weighed in at a still sizeable Stg18.44 billion, albeit a minor improvement on the third quarter's downwardly revised Stg19.17 billion.

There is little fresh news of note here. The economy continues to expand at a relatively sluggish rate and the external accounts continue to disappoint. The BoE MPC remains on course to raise Bank Rate by a further 25 basis points to 0.75 percent in May.

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 and full national accounts.

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.)