- UK economy experiences the highest trade deficit on record
- Industrial output and manufacturing production beat forecasts, prior releases revised up
- Pound traders get a murky package of data but the GBP remains underpinned anyway
The outlook of the UK’s economy is still exceptionally hard to predict given the volatile data and the stance of the Bank of England. We got another dubious bunch of macroeconomic releases which may be played down in the short-term but it may matter in the longer-run (trade data). Nonetheless, let’s begin with some positives which come from industrial output and manufacturing production. The former increased unexpectedly 1.6% yoy while the latter moved up 2.8% yoy – both metrics quite easily beat their consensuses at 0.9% yoy and 1.9% yoy.
It’s not the end of upbeat reports because industrial output was revised up from 0.4% yoy to 1.1% yoy while manufacturing production was lifted from 1.9% yoy to 2.7% yoy in July. Finally, construction output accelerated as much as 3.5% yoy whereas the street’s call indicated just a mere 0.2% bounce. The significant revision took place in this case as well which was revised upwards from -0.4% yoy to 2.7% yoy. Higher output in the construction sector could be a bit cryptic given hideous readings of PMI which have been unveiled of late.
Even as the industrial data bounced back quite substantially last month (plus upward revisions for July) subsequent months could bring some softness given manufacturing Purchasing Manager Index. Bear in mind that the latter registered a decrease in September and remained still a long way off from its counterparts across major European economies. On the flip side, one needs to highlight that the industrial sector isn’t the most pivotal for the UK’s economy hence its impact on the currency market could be contained as opposed to the retail sector being the most relevant point.
The last but not least figure is trade data which proved to be bleak to say the least. Namely, a trade shortage amounted to -14245 million GBP, the highest on record. This topic could be yet more mysterious when we take account of a massive decline of the GBP which made imported goods much more expensive. However, regardless of the weaker pound Britons have imported more than exported since the UK’s referendum last year. Notice that there had been hopes that a chronically high trade deficit could have been improved on the back of a tumble seen in the GBP, the reality was different at all.
By and large, today’s data has been a bit positive for the GBP as traders seem to pay just little attention to the trade data, it could change when a trade deficit eats into GDP growth though. Technically the GPBUSD appears to be unfazed and may be continuing to rise towards its closest resistance at 1.33. Either way, increases could be limited given the cloudy prospect for the UK’s economy.