Europe Ahead: UK growth expected to have slowed in the fourth quarter

The week starts with a mixed expectations and rather an optimistic
sentiment over the outlook for the global economy, though less upbeat
over the prospects for recovery in the European continent, as the
focus remains on the US and its strong dollar!

With heavy data on the queue for the week and expected to add further
clues onto the global recovery roadmap, UK will be the first to take
the stand and release fourth quarter growth figures. The sentiment
over UK and other nations' growth prospects is totally opposed to
that expected from the US later this week, where growth is supposed to
have accelerated on federal lands opposed to that to be reported by UK
today.

The Office for National Statistics (ONS) will report fourth quarter
growth where the UK economy is expected to have expanded by 0.5% in
the three months to December and by 2.6% on the year. Growth clearly
slowed from the second quarter's strong growth and the third's
0.7% which was still above the expected, and considering the
conditions the nation is in 0.5% so far sounds rather good!
Growth in UK was surely affected by a number of factors and most
importantly by the slowing recovery globally and especially in the
neighboring EU nations, which are UK's biggest trading partners.
UK's high inflation and elevated unemployment continued to be a drag
on the economy, not forgetting the debt crisis bulging across the
continent which also enforced the kingdom to follow suit and unveil
the toughest post war austerity package.

Nonetheless, despite the expected deceleration in economic activity
projected particularly in the first half of the year on the back of
the austerity measures, from tight government spending and expected
job losses, one of the measures that is to weigh on growth which is
the VAT increase to 20% was actually growth supportive in the fourth
quarter as Britons stepped up spending amid the holidays and ahead of
the scheduled increase that started in January.

Household spending was forcefully attempting to recover as no
fundamental change was seen on the state of the economy as the
unemployment though improved slightly, still remained high, and
inflation continued to soar. Britons only took their last chance at
spending ahead of the January tax increase which is one of the new
government's measures to cover the high budget deficit according to
their five-year manifesto.

The UK is caught between a rock and a hard place, and especially
policy markets as the BoE runs out of options! The minutes on
Wednesday are expected to show the deadlock prevailing as Posen
remains very dovish with clear signs of economic softness after the
sectors started to contract in December, while Sentance grew more
hawkish with the surging inflation figures, which the majority of the
BoE see still can be maneuvered and is temporary in nature as they
were all through 2010!

King is on the way to issue the fifth explanation letter to the
Chancellor and likely to be followed by three more this year as
inflation fails to fall below the upper limit at 3.0% and the BoE's
target at 2.0%.

UK's scenario is much difficult and much different and though growth
is still expected in the fourth quarter it is not that sound to
continue into the first quarter, especially with chances growing for
UK to contract once again!

The pressure is to be extensive on the Royal British Pound today and
the bullishness might be surrendered with the break of 1.5910 areas
which remain the key area to hold the upside movement and less than
expected growth will surely power the bears and extend the dollar's
gains.
Source: Fxstreet.com