By Simon Eastman
Yesterday we saw a raft of UK data releases all coming out under forecast.
The GDP figure for the UK has been woefully low for some time and was expected to come out flat from last month. We saw growth drop for Q3 from 0.3 percent last month to just 0.1 percent growth (expected to be 0.2 percent) and the yearly figure which showed at just 1.4 percent growth last month was expected to stay the same, dropped to 0.2 percent. This all points to slowing growth and the possibility of entering a recession in the coming months if the slide continues and we see three quarters of negative growth. This is invariably possible should the upcoming budget throw up tax hikes, meaning people have less money in their pocket to spend, slowing growth further.
Alongside the GDP figures, we also saw manufacturing and industrial production figures fall short of expectations, with both monthly figures dropping into negative territory. Industrial production went from 0.3 percent last month, to minus 2 percent, whilst its yearly figure dropped from minus 0.5 percent to minus 2.5 percent. The manufacturing figure went from minus 0.7 percent last month to minus 2.2 percent, whilst the yearly figure went from 0.6 percent to minus 1.7 percent.
With GDP down, the fact manufacturing is down is no surprise as the sector dominates our GDP output. The industrial production figure gives a clear indication as to the output of factories in the UK and correlates directly to the manufacturing reading and GDP. These poor figures show a clear picture of how poor the UK economy is performing currently and has a knock-on effect to the currency markets, as the Pound’s value drops through lack of investor interest in holding Sterling and increasing expectations the Bank of England will cut interest rates next month.
For those looking to buy Euros, we are seeing some of the lowest exchange rates in 2.5 years and the slump could well have further to go as the Autumn Budget looms on the 26th November and rumours of plots to oust Kier Starmer continue to cause political turmoil.
On a positive note, GBPUSD saw a two week high as a broadly weaker Dollar showed up again, as the US government opened back up. We still had no data releases, and the key non-farm payrolls due last week is now expected to be released next week amid concerns over the US labour market, and increasing expectations the Federal Reserve will cut interest rates again.
Today we round off the week with the turn of Europe to announce their GDP figures, with both monthly and yearly figures expected to remain unchanged in positive territory. We also see trade balance and employment data, so a few key figures for traders to bounce off. In the afternoon we are due producer price index releases and retail sales, plus a host of Fed member speeches, but whether they get released is yet to be known.
All in all, a bleak outlook for those with Sterling in hand, as we head towards the budget in a couple of weeks time and plenty of movement can happen between now and then. For those with a currency purchase coming up before year end, it may be prudent to discuss locking in the rates sooner rather than later, with one of the team members here at a Place in the Sun Currency and let us help you make your money go further.