Weaker-Than-Expected GDP
With most of the recent news flow out of the UK focusing on the risks and uncertainty around omicron, the latest set of economic data released today had some disappointing news for GBP bulls. The Office for National Statistics released its Q3 GDP readings today which showed that UK economic activity was already slowing down, well ahead of the emergence of the omicron variant.
Deficit Widens
Final UK Q3 GDP was seen at 1.1%, down from both the prior and expected 1.1%. Additionally, the UK current account deficit was seen expanding over the period to – £24.4billion. This marked a significant widening from the prior -£8.3 billion and a much deeper deficit than the -£15.8 billion deficit expected. Finally, revised business investment was also seen weaker than at expected at -2.5%, well below both the prior and expected 0.4% reading the market was looking for.
Net-Trade The Main Drag
Looking at the breakdown of the GDP data, net trade was seen as one of the biggest downward pressures on growth with the UK trade balance seen falling to -1.9% over the prior. This was down from the -1.2% seen in the prior quarter and highlights a worrying trend in UK trade data. Given that this latest downturn in activity came in ahead of the return of the UK government’s “Plan B” measures, the fear now is that activity over Q4 will be even lower. Looking ahead, the risk of yet stricter measures from the government (particularly in Q1 2022), raises questions over the outlook for GBP into early next year.
Omicron Risks
The government recently announced that no new measures will be brought in ahead of Christmas, along with the current isolation time having be cut from ten days to seven days. However, the government has said that it cannot rule out further restrictions and, given the worrying trajectory in infections (and the risks of a big spike around Christmas), the risks of a circuit breaker lockdown are growing, keeping the near term outlook fraught with downside risks for GBP.
Technical Views
GBPUSD
For now, GBPUSD continues to hold along the base of the bear channel from YTD highs. Price has carved out a tight block of consolidation along the 1.3196 level support and, with light trading ahead, looks unlikely to break in the next few days. In terms of levels to watch, the 1.3349 is the key upside level for bulls, a break of which will turn focus to 1.3461 and the channel top thereafter. To the downside, a break below 1.3196 will turn focus to 1.3031 next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.