Market Report - 15/11/2024
UK economy grows slower than expected ; Market awaits US retail sales
This morning saw the release of the UK quarterly growth report, the first since Labour took office in July. This data release tops off what has been a very busy week on the economic calendar and one that has led to enhanced volatility for the FX markets.
The Office for National Statistics outlined that the UK economy has suffered a summer slowdown, where GDP rose by just 0.1% in the July-September quarter. The 0.1% reading could be considered dispiriting for the UK economy, firstly because of emphatic slowdown from the 0.5% growth which was reported in the second quarter of the year and the fact that today’s reading was weaker than the 0.2% which was forecast by economists. Disappointingly, the economy actually contracted in the last quarter once adjusted for population changes.
Real GDP per head is estimated to have fallen by 0.1% in the third quarter of 2024 and is flat, compared with the same quarter a year ago. According to the ONS, this was mostly caused by drops in information and communication services as well as industrial output. In September, construction output increased by 0.1% whilst production output decreased by 0.5% and the services sector remained stagnant.
Following the data release, Sterling has depreciated vs both the Greenback and the Euro, with GBP/EUR falling below 1.20, with a daily low of 1.1974 already being noted. After giving up earlier gains with an upward retracement towards 1.27, the GBP/USD exchange rate fell back and is currently trading around the 1.2655 on the interbank market.
The Bank of England's forecast for UK GDP in the November Monetary Policy Report was undershot by today’s report showing growth of 0.1%. As a result, investors lowered expectations for the 3rd consecutive rate cut in December. Since the Bank is expected to cut on a quarterly basis, interest rates in the UK are expected to decline more slowly than those in other countries, which is essentially good for the pound and could lead for appreciation in the value of the UK currency in the weeks to come.
Across the Pond, retail sales figures for the month of October are released at 1:30pm UK time today, meanwhile industrial production output data is released at 2:15pm. Investors will have a keen eye on the results, looking for evidence that the US economy and more specifically the consumer and manufacturing sectors are strong.
Core retail sales are expected to increase by 0.3%, reflecting stable consumer spending patterns, especially in card-based transactions. Meanwhile, headline retail sales are projected to rise 0.4%, bolstered by auto sales growth (though partially countered by lower gasoline prices).
Yesetday in the US, Producer price index data had little impact on the US Dollar, much like CPI data that was released on Wednesday. Following data releases, Fed Chair Jerome Powell stressed that the economy has been “remarkably good” futher hinting that the Federal Reserve will not be in a huge rush when it comes to cutting interest rates. markets still indicating there is a 97.5% chance that the Bank of England cuts by 25bps at midday on Thursday, which would in turn bring borrowing rates down from 5% to 4.75%.