UK GDP up as Goldman votes for hung parliament

Apr 23, 2010
Tim Edwards

Robust GDP figures and Goldman Sachs’ advice to buy pound suggest a hung parliament holds no fear

The British economy grew by 0.2 per cent between January and March, despite the major disruption caused by record winter snowfalls, according to new figures from the Office of National Statistics.

The rise in GDP is lower than the 0.4 per cent growth seen in the previous quarter. However, that figure was revised up from an initial estimate of 0.1 per cent, and the same could happen with today's estimated figure.

Analysts had expected GDP to grow by 0.4 per cent, reflecting a view held by many experts, including Wall Street's most successful bank, Goldman Sachs, that the UK's emergence from recession is more robust than the figures suggest.

In an email to investors on Wednesday, Goldman's analysts said they had "long held the view UK growth is better than some of the official data portrays".

They recommended that investors should buy Sterling and sell the euro - a ringing endorsement of British economic prospects ahead of the most open and unpredictable general election in 13 years.

Goldman said they recognised that talk of the election resulting in a hung parliament had led to a sell-off of the pound in currency markets in February, but that now investors "have become a lot more comfortable" with such an outcome.

"This may also be due to the fact that all key parties seem to support a degree of fiscal consolidation in the foreseeable future," the Goldman analysts say.

Goldman also sees the Bank of England's determination to keep inflation down as a positive - and warns the euro could suffer due to "Greece-related risk factors". The bank recommends selling the euro until the pound reaches 83 pence (it is currently at around at 86.7 pence - its lowest since February 18).

The GDP figures and Goldman's vote of confidence blow a hole through the Conservatives' argument that a hung parliament could lead to a run on the pound and economic catastrophe.

On Wednesday, shadow business secretary Kenneth Clarke warned: "Bond markets won't wait. Sterling will wobble. If the British don't decide to put in a government with a working majority, and the markets think that we can't tackle our debt and deficit problems, then the IMF will have to do it for us."

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