UK economy recovers with strong summer of growth

10 October 2018

This content has been created by X-Trade Brokers Dom Maklerski S.A.

According to the latest figures from the ONS, the UK economy failed to grow in August, although there was a 0.1% upwards revision to the reading for the month of July which now stands at +0.4%. Looking at the bigger picture, growth of 0.7% for the 3 months to August is pleasing and comes in at a fair clip above annualised expectations for 2018 - even if it is just making up for lost ground earlier this year. The pound has edged higher on the day gaining against all of its major peers, although the appreciation is relatively small in the grand scheme of things. The FTSE is lower by around 10 points at the time of writing with the benchmark hovering close to its lowest level in 6 months around the 7200 mark.


Warm weather drives economic recovery

While the ONS have started to release monthly growth updates for the UK economy of late, there is a danger that this will lead to the focus being too short term and miss the bigger picture. Short term events can cause volatility in monthly updates and present a misleading representation and therefore a better read can still be found in the quarterly figures. In light of this the 3 month increase of 0.7% represents a pretty impressive recovery from the earlier parts of the year where weather wreaked havoc with economic activity, but having said that it is still below historic performance.


The latest developments with Brexit remain far more important than economic data as far as the pound is concerned, with the next week leading into the EU summit seeing the pressure for some tangible progress ramped up further. Both sides are standing their ground in recent negotiations but the chances of some real progress being seen in the not too distant future, which could well pave the way for a deal by next month, are rising, and this is causing the pound to make tentative steps higher.    


Haldane expects 1 rate hike in the next year

The chief economist of the Bank of England has been speaking in London this morning with some comments regarding monetary policy attracting a bit of attention. There’s nothing really groundbreaking in the comments themselves with remarks that wage growth is starting to pick up, but that this will likely be limited and gradual a typically balanced line from a central banker. Speaking specifically on rates, Haldane has said that the current market expectation of a further 0.25% increase in the base rate over the next year is not dissimilar from the bank’s forecasts - which are based on an orderly Brexit. The path of rate hikes clearly remains shallow even if there isn’t any adverse Brexit shocks, but this doesn’t necessarily mean that the upside for the pound is limited, as there is likely a fair discount in the currency at present for the chance of a no-deal outcome.   


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