The Pound fell half a cent against the Euro and US Dollar following poorer than expected manufacturing output figures. With growth expected at 0.5%, the shock figure of -0.9% was not welcomed by investors in a post-Brexit UK.
With little room for error, the impact of Brexit on the UK economy will be watched with scrutiny over the coming months with poor economic data set to intensify market movements against the Pound.
The NIESR GDP estimates released this afternoon could solidify concerns over the UK economy if figures disappoint, presenting further weakness for the Pound against the Euro and US Dollar. The report, which measures GDP estimates for the last 3 months, is important for markets to gauge whether there has been a slowdown in the economy since Theresa May announced that Government would trigger Article 50 in March.
Are figures likely to disappoint? There has not been any significant downturn in the UK economy since Brexit, whilst it may be too early to make assumptions, the data provided so far appears to have contradicted many who predicted severe economic shock following June’s vote. That being said, it is now over 5 months since the result and the impact of a weaker Pound may begin to soak into consumer prices, lending its way to slower growth.
On the other hand, a weaker Pound has made the UK’s exports more attractive, although the UK is a net importer, its exports should not be downplayed when considering overall UK GDP.
Friday’s Consumer Inflation expectations is yet another release that could hurt the Pound. Bank of England’s Mark Carney and many leading economists have warned that the UK faces a period of higher inflation if the Pound remains weak. A higher reading should not be considered good for the UK, as inflation without proper wage growth could lead to lower consumer spending.
Sentiment around the Pound remains weak
Although political uncertainty has found its way into Europe following the Italian Referendum, Pound to Euro exchange rate are unlikely to break through the 1.20 resistance barrier, and could be in for further downfalls in January.
Even if Parliament must agree on Brexit terms, it has been made clear from all sides that Brexit will not be delayed. Theresa May has agreed to release Brexit plans to Parliament on the basis that Brexit will not be delayed after March 2017.
With this in mind the Pound’s recent gains could be tested in the early weeks of January, even if Government lose the court ruling. May and her Government have made clear that the UK is opting for a hard-Brexit as such, and will look to close borders once the UK completes its withdrawal from the EU. Sentiment around the Pound will remain negative on the back of the Government’s plans for Brexit, and those looking to buy foreign currency with Pound Sterling may be prudent in considering your options sooner rather than later.