Currency Note GBP

GBP: UK economy in better shape than first thought

 

The week started with a bang as there was a barrage of economic data from the UK. It showed that the UK economy is in better shape than previously thought. Whether you loved or hated the World Cup, it is clear that it had a positive effect on the UK economy, as GDP growth accelerated to 0.6% in the three months to July 2018. This was up from 0.4% in the previous period and helps highlight how extended periods of warm weather – and England’s progress in the World Cup – encouraged us all to spend a little more.

Construction output was impressive too, coming in at 3.5% against expectations of 2.6%. That said, manufacturing production dipped by 0.2% when a 0.2% increase had been forecast. We also saw the total UK trade deficit shrink to just £100 million in July from £900 million in the previous month.

However, shortly after midday, we saw reports that Barnier said a Brexit deal within six to eight weeks was ‘realistic’. This trumped all other releases and the pound jumped against the euro and dollar. If a deal is agreed in the timeframe that Barnier alluded to yesterday, then it wouldn’t be a surprise to see some further sterling strengthening. On the other hand, if talks fall through then the pound could sink.

Today we have the unemployment rate and average earnings for July. Excluding bonus, wages are expected to have picked up a little from 2.7% to 2.8%.

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