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UK GDP growth preview
The UK economy has recorded positive quarterly GDP figures for the last 10 years and an extreme figure remains highly unlikely for the first quarter of 2007. The services sector should post firm growth while the manufacturing contribution is likely to be limited. There will be some risk of an erratic primary-sector figure on volatility in energy production which could distort the headline figure while net exports will tend to weaken growth. Markets will also look at inflation estimates within the data, although there have been several more recent inflation reports and the reaction will be centred almost entirely on the headline GDP reading Sterling is likely to advance on a figure of 0.8% or higher for the quarter while the UK currency will be sold if growth is 0.6% or lower. Given optimism over UK growth trends, there is likely to be a bigger reaction to weaker than expected data rather than strong data. Indeed, a figure of 0.5% would be likely to result in sharp Sterling selling. Overall, given that weather conditions were generally favourable during the quarter, the underlying risk is for a slightly stronger than expected initial reading.