Strong services sector provides support to UK GDP

Latest GDP reading published from Office of National statistics (ONS) today, showed growth in UK in fourth quarter was better than what market was expecting.

GDP grew by 0.6% above market consensus of 0.5%. GDP grew by 3% in the fourth quarter from a year ago. Overall growth in 2014 stands at 2.8% compared to 2013.

ONS also revised its estimate upwards for agriculture, forestry and fishing, production and services.

• However most of the components of GDP are not doing well, when compared to pre -crisis level.
  
  
• Construction outputs were revised downwards in latest GDP figure by 2.2%. ONS also revised future growth in the segment downwards.
  
  
• Growth in the services sector remains extraordinarily strong, though not surprising given that London remains world's financial hub. As per latest statistics from Bank of International Settlements (BIS) UK has 50% share in interest rate derivative segment and close 40% in Currency derivative segment.
  
  

Recently Bank of England (BOE) won a legal battle against European Central Bank (ECB) over settlement of European securities that will keep UK's position in the financial market secured. Moreover tighter rules in US and Europe through Dodd Frank and MIFID II and UK's loose position has kept London favored for financial transaction.

However, weaker growth in Manufacturing, construction and production will keep policymakers worried over strength of the economy to handle rate hikes, which might prompt BOE to delay rate hike in spite of stronger headline number. Pound is trading at 1.479 against dollar, it failed to gain much ground over better economic release.