UK Data Soft, Raising Chances of Rate Cut

Alan Penny

13 January 2020

2 min read

  • GDP figures miss estimates
  • Manufacturing Production falls short
  • Industrial Production also lower than expected

The data coming out of the United Kingdom is still soft. Although the market has posted a recovery in the British pound over the last several months, that could be thought of as value hunting, as the pound had been oversold.

Now that the elections are over, we begin to look at some of the current economic numbers through the prism of the idea of monetary policy.

Economic figures disappointing

The GDP unexpectedly contracted in November for the United Kingdom. GDP month-over-month in the United Kingdom was released on Monday at -0.3%, when it was expected to be flat.

The previous month was revised from 0.0% to 0.1%, showing a slight improvement on anticipated revisions. This was a huge disappointment. There were other announcements that also proved disappointing.

This is perhaps reflective of the historically cheap values of sterling currently

The Manufacturing Production month-over-month figure came out at -1.7%, which was anticipated to be -0.3%, and thus showing a huge miss. The previous month was revised upward from 0.2% to 0.5%, so that does help soften the blow a bit.

Index of Services quarter-over-quarter came out at 0.1%, which was lower than the expected 0.2%. Industrial Production month-over-month came in at -1.2%, as opposed to the expected -0.1%.

It was also revised higher from 0.1% to the 0.4% level posted during the announcement. One bright spot was the Goods Trades Balance figure coming out at -5.3 billion pounds, which was expected to be -11.8 billion pounds. Furthermore, the previous month was revised from -14.5 billion pounds to a reading of -10.9 billion. This is perhaps reflective of the historically cheap values of sterling currently.

BoE members are dovish

There has been some recent relatively dovish commentary by some Bank of England members, including Gov. Carney. The sterling has slid a little recently because of this, while interest rates continue to fall in gilts. This suggests that, perhaps, the Central Bank in London is starting to think about rate cuts.

At the end of the month, the bank will have a meeting that it is starting to set up as a possible candidate for a rate cut, or at least for further quantitative easing.

This could serve as a preventative act anyway, as this year will be somewhat choppy due to ongoing negotiations between London and Brussels as the British leave the European Union.

Although it’s very possible that the British pound continues to rise over the longer term, the next couple of months may be a bit weaker than previously seen. If that’s the case, it will only be a matter of time before value hunters come back in to pick up the British pound.

It’s highly probable that 2020 will be very much like 2019 was for the British currency.

Written By
Alan Penny

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