Pound Momentum Reversal Underway

In spite of the slew of bad data recently released from the United Kingdom, from a big picture perspective the region looks likely to avert the slowdown facing other regional peers with Sterling to be an outperformer.  Although the economy has downshifted marginally as far as growth is concerned during the latest preliminary GDP indications from the 3rd quarter, the overall trend remains strong in large part due to strong wage growth and low inflation.  When compared to other advanced economies such as Japan, the UK is on the short list of countries likely to outperform in the midst of the one of the longest declines in global trade in recent memory.  As the international export economy continues to falter, the UK’s influential role as a financial center and haven currency will help cushion the external weakness as the Bank of England moves closer to its first rate hike in years. 

GDP Underperformance Still a Strong Sign

The first reading of quarterly and annualized GDP figures from the UK released last week point to a slowing economy, in-line largely with global developments as a pickup in consumer spending and services fail to offset the declines in manufacturing and construction.  Although the deflationary environment facing commodities has hurt many producer nations as demand falters for all manner of raw materials, buyers are finding themselves in a fortunate positions, especially energy consumers. 

Lower petrol prices have been passed along as savings to many consumers and even though the price rout has impacted North Sea oil and gas producers, the lack of inflation in energy has in many ways contributed translated to stronger wage growth and moreover lower unemployment.  The downtick from 0.70% to 0.50% was in part a reflection of the weakening macroeconomic backdrop, but mirrors global developments and should not be considered in a negative light considering 2.30% annualized pace.