GBP plunges as UK data comes in worse than expected
UK data showing notable weakness at the end of last year - GBP bears coming out of the woods again
GBP takes a knock on the latest growth data in the UK, with Q4 showing a mere 0.2% growth vs the 0.3% expected. This is less than half that of Q3 which came in at 0.6%, and shows just how much the Brexit uncertainty factor is hurting activity as the BoE highlighted last week. The numbers now represent an annualised growth rate of just 1.3%, and this is just a tenth above the forecasts from the MPC meeting revealed last week at 1.2% for 2019.
Looking at business investment, Q4 reported a larger than expected fall of 1.4% vs -1.3% estimates, which translates into a -3.4% fall in 2018. We also saw construction output falling 2.8% in Dec to add to the UK's woes, while manufacturing fell 0.7% vs a 0.2% drop expected. Recall, the manufacturing PMIs were notably weaker when released just over a week ago, with Markit/CIPS suggesting this sector is heading for a recession.
The only positive note in today's mix of data was the non EU trade balance, which contracted to a -£3.64bln deficit from -£4.18bln. Total trade was also better as the deficit here was also lower at -£12.1bln vs -£12.4bln, though not as much as expected.
From here, the market will be listening out for fresh developments on Brexit, as it is clear for all to see that the UK really needs to show some clarity to business in order to get investment levels up and running again.
Cable was knocked down to a little under 1.2900 where we ran into some modest support. As we saw last week, the mid 1.2800's are where we see the stronger demand, with traders still betting on the fact that parliament will do all and everything it can to avoid a no deal outcome - though time is running out!
EUR/GBP has also pushed up a little to try and push on resistance levels closer to 0.8800, though we barely touched on 0.8770 as the EUR will also come under pressure on any disruptive UK withdrawal from the EU, so the dynamics have changed in the cross rate - as we saw last week when key resistance in the 0.8800-50 area was firmly rejected.