British Pound Sterling GBP Outlook Remains Neutral to Positive Despite UK GDP Data

October 27, 2015 - Written by John Cameron

STORY LINK British Pound Sterling GBP Outlook Remains Neutral to Positive Despite UK GDP Data

UK GDP sees Slower-than-Expected Growth, Pound Holding Steady

The British are renowned for being obsessed with speaking about the weather and the unseasonably damp climatic conditions during August were the source of much conversation.

However, official data published by the Office of National Statistics (ONS) revealed that the damp conditions during the only month of the year when all UK schools are shut had a detrimental effect on the local economy.

Analysts had forecast that the Q3 Gross Domestic Product numbers, published earlier, would point to a slight decrease from Q2’s counterpart showing of 0.7%.

However, the revelation that the pace of expansion of the British economy had slowed to 0.5% during the three months to the end of September came as a body blow to investors holding Sterling-denominated assets.

Currency News: ONS Attribute Damp British Weather and Poor Manufacturing Output to Slowing UK Growth

The ONS pointed to the inclement weather in August as a contributory factor, but economists drilling down into the official numbers found evidence of further malaise in the domestic economy.

The component data confirmed that the UK manufacturing sector remains in contraction, suggesting that UK Chancellor of the Exchequer George Osborne ‘march of the makers’ policy is failing to have its desired effect.

Elsewhere, the figures also revealed that the three months to the end of last months had seen the most pronounced slump in the construction sector since the early part of 2012.

All in all, it would appear that the UK’s economic recovery is patchy at best and at worst it is completely faltering.

Pound Outlook remains Neutral to Positive as Growth Deemed Robust Enough Not to Spook Investors

Chris Williamson of Markit noted in response to the numbers that, ‘the third quarter slowdown, and warning lights from recent business surveys about the weakness intensifying in September, suggests that policymakers will want more time to assess the extent of the slowdown as we move into the fourth quarter, effectively postponing any rate hikes until next year.’

Although accepting that the cooling pace of growth in the UK economy was a worrying development, Williamson highlighted the reason why losses for Sterling have been relatively limited on the day; as we approach Halloween, the mildly disappointing UK growth figures were not bad enough to spook investors, however they were sufficiently weak to cause the Bank of England to push back a demand-dampening interest rate hike.

For this reason, the outlook for the Pound Sterling remains neutral to positive.

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TAGS: Pound Sterling Forecasts