The UK economy will be in focus on Friday as November data on monthly GDP, industrial output and trade are due at 09:30 GMT. But with the crucial Parliamentary vote on Theresa May’s much-criticised Brexit deal coming up just a few days later, the normally closely-watched indicators may fail to generate notable reaction in forex markets.
After notching up growth of 0.6% quarter-on-quarter in the September quarter, the British economy is expected to have cooled in the final three months of 2018, with early indications suggesting GDP growth could slow to just 0.1%. On a month-on-month basis, GDP was up 0.1% in October and is anticipated to have expanded by a similar amount in November. With the Markit/CIPS services PMI slowing sharply in November and picking up only modestly in December, a growth rate higher than 0.1% in Q4 would be difficult to achieve unless the mini-bounce in manufacturing activity proves strong enough to offset the services weakness.
The manufacturing PMI was boosted in December from stockpiling by companies in preparation of a possible no-deal Brexit. But this is seen by investors as only a temporary lift and is unlikely to translate to a higher pound even if the trend continues in the coming months. As for the official November numbers, manufacturing production is forecast to have risen by 0.3% m/m, recovering partially from a 0.9% decline in the prior month, while broader industrial output is projected to have edged up by 0.2% after dropping by 0.6% in October.
Trade figures are also due on Friday and are expected to show a small narrowing of the UK’s goods deficit with the rest of the world. A weaker pound has so far had only a marginal effect in improving the UK’s massive trade deficit as this has coincided with slower growth in other EU countries – Britain’s biggest export market.
The pound could see some small moves from the data but Brexit headlines will likely be triggering greater volatility. British MPs look set to vote down the prime minister’s Brexit deal in a vote scheduled for January 15. Although lawmakers have been turning increasingly vocal in their opposition to a no-deal scenario, providing little comfort to markets, all possibilities remain wide open until there is more clarity as to how events will unfold if the deal is rejected.
An overall positive set of numbers could nevertheless help sterling climb higher if the US dollar stays on the backfoot. Pound/dollar could initially target the December top of 1.2814 before attempting to reach the 123.6% Fibonacci extension of the upleg from 1.2436 to 1.2814, which is just above the 1.29 handle.
