Sterling shines as hopes of more QE fade

Sterling stole the show in Thursday markets when better-than-expected gross domestic production (GDP) figures for the third quarter – up 1% quarter-on-quarter – strengthened the pound, causing expectations of further monetary easing to fade.

The figures propel the UK out of a double-dip recession, with increased economic activity during the Olympics and the Queen’s Jubilee celebrations credited with the rise in growth. However, the development has cast doubt on the possibility of another round of quantitative easing (QE) from the Bank of England.

Economists at banks across the City revised their QE forecasts downwards for November from a consensus expectation of £50 billion of monetary easing.  

Malcolm Barr, economist at JP Morgan, said: ‘We had been pencilling in £50 billion of further gilt purchases as the monetary policy committee meets in early November, with the vote split six-three or five-four.

‘But given the stronger-than-expected performance of services output underneath this morning’s GDP estimate, we are moving that call down to a £25 billion move. The forecast does not show any further monetary easing into 2013, through the risks are clearly biased in that direction.’

Sterling added 0.52% against the dollar to $1.612, and gained 0.7% against the euro to €1.245.

UK markets were largely flat as the FTSE 100 remained at 5,805 and the Mid-250 index took on 0.92%, or 110 points, to 11,972.

Hedge fund Man Group (EMG.L) rebounded 3p, or 3.89%, to 77p to take pole position on the FTSE 100 following the sharp sell-off of shares last week when the group revealed fund outflows for the fifth consecutive quarter.  

Pre-tax profits at Debenhams (DEB.L) rose 4.2% in 2012 as shares jumped up 9.5p, or 8.75%, to 118.5p. Like-for-like sales also increased 2.3% in the past 12 months, and the group announced plans to open 17 more stores and hire 1,700 new staff.

Cruise operator Carnival (CCL.L) increased 74p, or 3%, to £24.31 as rrival Royal Caribbean raised its full-year forecast, signalling better trading conditions.

Communications group WPP (WPP.L) fell 18.5p, or 2.3%, to 786p as it cut growth forecasts for the second time this year as clients reduced their advertising budgets.