As Brexit uncertainty and no-deal Brexit risks hit orders, the economic outlook is deteriorating in the UK.
Earlier today, the UK August production data disappointed, contracting 0.6% m/m and by 1.8% y/y in the broad industrial output measure. The narrow manufacturing production contracted by 0.7% m/m and by 1.7% y/y, some way off median forecasts.
Stay tuned to the HotForex Analysis page for exclusive expert analysis of all the major market movements!
Meanwhile, last week we also saw a worrisome situation, as the September PMI surveys found employment contracting at its fastest pace since December 2009, the days of the Great Recession, with job losses in the service sector declining having hitherto been holding up while jobs in the construction and manufacturing sectors declined.
On the flipside, the monthly GDP data, today, showed that the UK expanded by 0.3% over July and August, strongly portending that growth over Q3 will be positive. So, while the Eurozone reading and the overall data out of the UK effectively signals stagnation, the monthly UK GDP keeps the wolf of recession at the door following the 0.2% contraction in Q2.
Despite this, the data should further facilitate a dovish-turn-in-progress at the BoE, especially now that it is clear that Brexit concerns are hitting the whole economy, even if a no-deal scenario can be avoided for now. The Institute for Fiscal Studies (IFS) meanwhile warned that even a “relatively benign” no-deal Brexit could push borrowing up to GBP 100 bln with total debt likely to jump to 90% of national income. IFS director Paul Johnson warned that the “government is now adrift without any effective fiscal anchor”.
Stay tuned to the HotForex Analysis page for exclusive expert analysis of all the major market movements!
Sterling dropped initially, in the wake of the data release, though follow through has been limited due to GDP, which is suggesting that the economy is on course for a positive print for Q3, and will avoid technical recession. Overall, the currency continues to trade with about a 14-15% discount in trade-weighted terms compared to levels pre-vote in June 2016.
On the Brexit front, UK Prime Minister Johnson will meet his Irish counterpart later, which the media has tagged as a last-ditch attempt to reach a compromise on the Irish border issue, though more likely it is a stage for both to put on a show that they are doing all they can given the intractable reality of their respective positions. A delay in Brexit is all but inevitable.
At the current juncture and with parliament deeply divided, a general election in November or early December also seems inevitable. However, if PM Johnson’s ongoing threat to leave without a deal on October 31 is not a bluff to bring a clear majority for those backing a no-deal Brexit vs parliament, and instead he insists on that going into a general election then this would be politically risky for him. This would actually be a chaotic backdrop for everyone.
The UK would have suddenly severed itself from over 750 separate agreements worldwide (according to FT research), requiring re-negotiation at not only the UK-EU level but also deal-by-deal authorisation of every third country involved, all at a time when UK imports are getting more expensive and UK exports more dear as the country shifts to backstop WTO trading terms.
Andria Pichidi, Market Analyst at HotForex
(Read Our HotForex Review)
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
Andria is a a Market Analyst with a mission to actively support HotForex’s clients in becoming better traders, by delivering daily market reviews.