UK GDP not the key for BOE

October 27, 2015

Today’s sees the first reading of Q3 GDP data in the UK and it is expected to dip to 0.6% from 0.7% in Q2. Recent manufacturing surveys have indicated that the sector is slowing and despite manufacturing making up only 10% of the UK economy, the pace of deceleration is starting to become a concern. The services sector, making up the vast proportion of the UK economy, has also seen survey data rapidly declining in the past three months and at the same time consumer confidence has dipped recently, a critical ingredient to the success of services. Today’s expected dip in growth will come as little surprise especially since the Eurozone recovery is struggling to gain traction, meaning UK the manufacturing and services sectors will continue to find the going tough. But a major concern for the BOE is the reemergence of a deflationary environment. With the exception of September’s 0.2% rise in month-on-month inflation the UK would officially be in a deflationary environment following negative readings in August and October. Sterling could come under pressure this morning especially if the GDP number is lower than expected. Later today there’s a raft of US data with durable goods, then the Markit services survey and finally consumer confidence expected to dip slightly and this release can often move the dollar.

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