Tomorrow is a major economic news day for the UK, with a host of indicators scheduled to come out. But, the most important data we are expecting will be the Q1 GDP numbers.
The UK is one of the last of the major economies to report their results from the first three months of the year. And what to expect from the event has analysts somewhat divided.
The rush of data will likely rile up GBP pairs for a while, even if there is an initial strong move in response to something unexpected in the GDP number.
There is also the preliminary number, which could be revised in a month from now. In fact, prior months might also be revised. Either way, for once we get to talk about the UK without too much reference to Brexit.
Starting with the data point most likely to move the markets: the quarterly GDP figure.
The consensus among economist surveyed is that it will register a quarterly growth rate of 0.2% and an annualized rate of 1.8%. This compares to the prior numbers of 0.2% and 1.4% respectively.
If the consensus is met, then it would show an improving situation. But that likely wouldn’t cause too much of a reaction in the pound since it’s being priced into the market.
The argument for the optimists (a couple of whom project up to 0.5% quarterly growth) is that because the original Brexit deadline was on March 29th, businesses stocked up in advance given the potential for disruptions. They point to the increase in UK-EU trade during those months and the growth in inventories.
The argument among the pessimists, several of whom project just 0.1% quarterly growth, acknowledges the above scenario. However, they say that Brexit has caused enough economic slowdown that even increased buying won’t be enough to push the needle.
To be a Pessimist or Optimist?
Which of these camps is more likely to be correct? Well, the data so far has been pointing in opposite directions.
While retail sales have been robust, and wages have been increasing, PMIs have been lackluster at best. And inflation is not growing as much as regulators would like.
The reality is that despite the talk of the UK going its own way, a lot of their indicators are moving in tandem with the rest of the continent.
The prior quarter’s annualized UK GDP of 1.4% was just a decimal off the EU’s at 1.5%. Inflation is on the wane and so is the outlook among businesses in the EU. In order to fit the more optimist outlook, the UK would have to be performing better than the continent.
It’s Not Just the GDP
We will be getting a series of monthly data as well. This can be just as relevant to the market because it’s fresh information covering the month after the last quarter ended. Among those, we should probably make a special note of the following.
Throughout all of last year, manufacturing in the UK had been slipping downward. But, we did have two months of solid growth. Projections are for flat growth last month, compared to 0.9% the prior month. If the expectations turn out to be true, then the start of the year would have likely been an exception, pointing to a more negative outlook.
Since the beginning of the year, the UK trade balance has turned significantly more negative. And this is what analysts are pointing to about the potential of businesses stocking up ahead of the end of March. The expectations of a trade deficit of £11.9B compared to £14.1B prior would be on the path of a return to normal.
The Currency Response
Even if we get a better than expected result in the GDP, there is a pretty broad consensus that a bounce in the pound will likely be short-lived. This is due to the market turning right back to Brexit uncertainty. Should the data disappoint, then it would just be a further step in the downward trend.