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UK GDP Preview: Economic Growth to Falter Amid Global Slowdown as Brexit Risks Weigh
The second reading of Britain’s first-quarter GDP figures will probably confirm the loss of momentum in the economic recovery, which would be in line with the global trend and as the country prepares for an in-out referendum in the European Union (EU) in less than a month amid a bitterly fought campaign.
The economy is likely to have grown 0.4% in the first quarter, slower than the 0.6% pace in the last three months of 2015, and the same as the first estimate given in April, the Office of National Statistics is expected to confirm on Thursday, according to a survey of economists.
From a year earlier GDP is forecast to have expanded 2.1%, in line with last month’s first reading, according to the survey.
The British economy is facing headwinds from weakening growth in emerging markets, notably China, with the International Monetary Fund (IMF) last month warning about an "increasingly disappointing" pace of economic recovery around the globe making the world economy more vulnerable to shocks. The IMF sees global growth at 3.2% this year, having downgraded its prediction four times within a year.
Against this backdrop comes the UK’s plebiscite on EU membership on June 23, which has further weighed on the world’s fifth largest economy and continues to cloud the outlook, business surveys have indicated.
PMIs for services, manufacturing and construction compiled by Markit Economics suggested that the economy came close to stagnation at the beginning of the second quarter. They implied that UK GDP was growing at a 0.1% pace in April, with factory output contracting for the first time in three years with about 20,000 jobs lost in the sector in the past three months, Markit said. Construction activity expanded at the weakest pace in almost three years, and activity in services was the weakest since February 2013, according to the PMI data.
The results add up to "a triple-whammy of disappointing news on the health of the economy at the start of the second quarter," Chris Williamson, Markit's London-based chief economist said. "April also saw an increase in the number of companies reporting that uncertainty about the EU referendum caused customers to hold back on purchases, exacerbating already-weak demand linked to global growth jitters and ongoing government spending cuts."
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GBP/USD: Cable Defends $1.47 Ahead of UK GDP
The GBP/USD pair ticked higher on Thursday and was trading above the $1.47 mark during the Frankfurt session, with further volatility likely during the day.
Later in the day, the second estimate of the Q1 UK GDP is due and the quarter-on-quarter should stay at 0.4%, while the yearly change is expected to remain at 2.1%.
"UK growth has been slowing for quite some time now and while it is likely to be difficult to garner too many clues from this latest set of numbers there is a worry that business investment is starting to slow down. This will be of particular interest given that in the first set of numbers we saw a decline of 2%, however given that we saw some decent PMI numbers from the construction sector towards the end of the quarter we might see this number nudged up a bit," Michael Hewson, chief market analyst at CMC Markets UK, said on Wednesday.
The pound remains supported by diminishing Brexit risks. An ORB poll revealed that 57% of Conservative voters now say they will vote to remain compared to just 34% in March. Even among the over 65’s, 52% of voters are now backing remain, compared to 34% in March.
GBP/USD: Cable at Daily Highs, Eyes $1.47
Cable was seen trading near daily highs around $1.4670 during the London session on Friday, but with only minimal volatility recorded so far on the day.
During the Asian session, the UK Gfk consumer confidence survey for May was released and it managed to improve somewhat and came out at -1.0, up from -3.0 previously.
"It is a relief that consumer confidence was a little firmer in May following April’s drop to a 16-month low, but the suspicion is that consumers will be cautious in their spending amid heightened uncertainty in the run-up to the 23 June referendum on UK membership of the European Union (EU)," Howard Archer, chief UK + European economist at IHS Global Insight, commented on the release.
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GBP/USD forecast for the week of May 30, 2016
The GBP/USD pair initially tried to rally during the course of the week but had a bit of trouble at the 1.47 handle. By doing so, we pulled back and formed a shooting star, and as a result it’s likely that we will pull back slightly from here. However, there is a lot of support underneath that should continue to push this market to the upside. A break above the top of the range for the week should be reason enough to go long, but it might be easier to do off the daily chart.
UK Market Insight: Busy Weeks Ahead, BoE in Shadow of Brexit Debates
The UK will vote on leaving the European Union on June 23 and the main events in the country in the weeks ahead will be the latest decision on interest rates, as well as a mix of speeches and debates on the Brexit issue.
The opinion polls have been showing that results at the referendum will be probably decided by the "undecided" group of voters, putting more pressure on both sides to bring them into the fold in the final weeks ahead of the referendum. Research conducted by YouGov for the Times showed 41% for both the 'Remain' and 'Leave' camps, while 13% of the questioned people were still undecided.
A similar poll from ICM published on Tuesday also showed that the chance of Britain remaining in the EU after June referendum was a coin toss, with 45% both for and against while 10% were undecided.
Furthermore, the Bank of England (BoE) revised down its outlook for short-term GDP growth to 2% in 2016, from 2.2% seen in February. At the same time, the BoE also lowered the GDP outlook for 2017 to 2.3%, from 2.4%, and to 2.3% from 2.5% in 2018.
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GBP/USD: Sterling Crashes Below $1.46, Trades at Daily Lows
he pound plummeted on Tuesday, having printed daily highs around $1.4720 during the Asian session and it has been in unchanged downward movement since then, trading at daily lows around $1.4580 during the London session.
If the referendum on Brexit was now, the Leave vote would get 46% of the vote, while the Remain side would get 51%, with the 4% left undecided, an ORB poll conducted via phone and published by the Daily Telegraph said.
The previous poll by ORB, released on May 23, saw 55% in favor of staying in the EU, 42% opting to leave and 3% undecided. In the eight days between the releases, the gap narrowed from 13% to just 5%.
Sterling traders will also focus on this week's data from the United Kingdom. The manufacturing PMI and mortgage approvals are due tomorrow, the construction PMI will be published on Wednesday, and the services PMI on Thursday.
Moreover, Bank of England Governor Mark Carney is due to deliver a speech at the unveiling of The New Fiver at Blenheim Palace in Oxfordshire on Wednesday.
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GBP/USD: Sterling at Daily Lows as Dollar Recovers
The so-called cable was trading near daily lows and was spotted 0.4% weaker on the day, hovering slightly above the $1.44 mark during the US session on Wednesday.
Today's US data showed that the manufacturing sector improved in May, when both the PMI and ISM surveys topped analysts' estimates. The first improved to 50.7 from a flash reading of 50.5, while the latter jumped to 51.3 from 50.8 booked in April. Moreover, the inflation subindex of the ISM survey called prices paid accelerated to 63.5 from 59.0.
Earlier in the day, the manufacturing PMI in the United Kingdom ticked higher to 50.1 in May, according to the latest Markit release and improved from 49.2 booked in April. The indicator jumped into expansion territory above 50. Traders were not impressed and the pound failed to make any significant bullish move and the GBP/USD pair kept trading below $1.45.
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GBP/USD: Sterling Crawls Higher, Awaits Carney Speech
The so-called cable was consolidating after Wednesday's big moves and the pair was slightly rising during the Frankfurt session on Thursday, booking 0.2% gains and trading around $1.4440.
Later in the day, Bank of England Governor Mark Carney is due to deliver a speech at the unveil of The New Fiver at Blenheim Palace in Oxfordshire. This is the main fundamental driver for the pound on Thursday and it might bring elevated volatility.
Traders will also focus on today's construction PMI for May, which is forecast to stay near April's 52.0. Wednesday's manufacturing PMI swelled notably to 50.1 from 49.4 previously.
The services PMI is due on Friday and the market anticipates a slight jump to 52.5 from 52.3 booked in March.
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GBP/USD: Sterling Stays Above $1.44 After Services PMI
According to the latest Markit release, the UK services PMI ticked higher in May to 53.5 from 52.3 booked in March.
The services sector in the UK has been one of the most important engines in the country's development, covering about 79% of the whole economic activity on the island.
Sterling held small gains after the release and was trading around $1.4430, with further volatility expected later in the day.
Yesterday's construction PMI moderated from 52.0 to 51.2 and Wednesday's manufacturing PMI jumped from 49.4 to 50.1.
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GBP/USD forecast for the week of June 6, 2016
The GBP/USD pair had a significantly volatile week as we once dropped below the 1.45 level, but having said that we turned around to form a hammer. This is a market that could continue to go higher, even though the British pound has been so negative, due to the fact that the British talk about leaving the European Union. However, in this pair we also have the dynamic due to the fact that the jobs number out of the United States was so poor. One thing you can count on is volatility but it might be easier to buy this pair on dips using shorter-term charts.