Orbex Market Flash

UK GDP Lower Than Expected In Q4 2018 Due To Brexit Worries

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Following the heavy downward revision to the Bank of England’s own growth forecasts at its first meeting of the year last week, the latest GDP figures have done little to persuade the market that the BOE was wrong.

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Brexit Uncertainty Hits Economy

The latest data from the Office for National Statistics showed that UK GDP grew by just 1.3% year on year in the final quarter of 2018. This was below estimates of a 1.4% rise and down sharply from the prior 1.6% reading.

The quarter on quarter reading rose just 0.2%, in line with estimates. But again, this was sharply down from the prior 0.6% reading.

This final growth reading for 2018 confirms the negative impact of growing Brexit uncertainty which intensified into the end of the year, on businesses and investors alike.

The reading comes after recent PMI datasets showed acute weakness in the UK services sector, which comprises the biggest part of the UK economy.

BOE Cuts Growth Forecasts

At its recent meeting, the BOE cut its growth forecasts for 2019 from 1.7% to just 1.2%, and this final reading for 2018 encourages the lower outlook.

The BOE highlighted the damaging impact that the ongoing Brexit negotiations have had on the economy, as well as the risks which lie ahead in the event of a no deal Brexit.

Leaving the EU without an agreement could force the BOE to cut rates. However, the central bank did also say that if a deal can be delivered and a negative economic shock avoided, it intends to continue pursuing monetary policy tightening.

Technical Perspective

gbpusd

GBPUSD is now trading back down towards the broken falling wedge pattern which was retested last week. If we break back under the upper trend line of the pattern, structural support at the 1.2690s region will be brought into focus. Bulls will need to see price back above the 1.3004 level to keep further upside in view though, for now, the level has held as resistance once again.

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