Home » Currency Note » Currency Note » UK economic growth hits near two-year high

Good morning. Fridays tend to be pretty good as it is, but when the UK economic growth figures come in at a near two-year high, they get even better. Figures released showed that the UK GDP growth rate for the third quarter 2018 was 1.5%. This was in line with expectations and showed a marked improvement from the 1.2% posted in the previous period. It is the best quarter since the end of 2016.

However, it wasn’t all rosy, as we saw that growth stagnated in September and didn’t post any growth in August either. Economists had expected a small increase of 0.1% so the release was a little disappointing. Unfortunately, we also saw UK business investment hitting its worst run since the financial crisis. Between the second and third quarter of 2018, business investment fell by 1.2%. That’s the sharpest decline since the first quarter of 2016 and is the third consecutive quarterly fall – something that hasn’t happened since the global financial crisis.

The most likely reasons for this is continued Brexit uncertainty which has made companies reluctant to buy new factories and offices until they have more of an idea of the type of Brexit we can expect. The Chancellor of the Exchequer, Philip Hammond, delivered a speech during a trip to Fuller’s Brewery in London, in which he alluded to the quarterly GDP reading of 0.6%. He said that the positive growth is proof of the underlying strength in our economy.

Not everybody agreed, with the CBI saying it fears the UK economy is weakening. Their principal economist, Alpesh Paleja, said that the positive impacts of the warm weather and World Cup will fade in time and the CBI expects subdued growth in the future. Ana Boata, a senior economist at Euler Hermes, weighed in and said she fears growth could halve in the current quarter.

There is nothing on the schedule today, but tomorrow picks up, with the unemployment rate and average earnings for September set for release in the UK. We will also see the German inflation rate for October and the ZEW economic sentiment index for November. The latter release is expected to worsen, from -24.7 to -25.0 as trade war fears continue to have their wicked way with the eurozone’s largest economy.

Last week, the pound had a bit of a bumpy ride and at one point hit $1.3176. However, it fell back toward $1.30 as the week progressed and even sank below that on Friday. So much hinges on Brexit now, that some big moves could be forthcoming in the next few months. In which direction is almost entirely dependent on the sort of deal the UK agrees with EU – if a deal is agreed of course. Strap in, because the next four to five months could be a bit of a rollercoaster.

The drop in sterling’s value that we saw after the EU referendum should highlight how important it is to protect your budget from currency volatility. We are not scaremongering – many people who haven’t have taken a significant hit that could have been completely avoidable. Far better to lock in a rate and forget all about Brexit.

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