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UK Economic Data Mixed in October

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Written By: Richard Koch – Forex Focus

A review of the major economic numbers from the UK in October.

The pound sterling came under selling pressure versus the greenback and the euro this month, as mixed economic data from the United Kingdom and the ongoing departure negotiations with the 27 countries representing the European Union (EU) have remained grim. The UK is due to exit the European Union at the end of March 2019.

The key economic numbers in the country that have been announced so far this month include the IHS Markit manufacturing PMI, which slipped to 55.9 in September from 56.7 in August, as growth in new orders and output led to rising commodity prices and disruptions in supply chains. The services PMI, however, rose to 53.6 after falling to 11-month lows in August. Although job creation in the services sector expanded to its highest level in 19 months, new orders registered the slowest growth since August 2016.

The UK Halifax House Price Index surged by 4 percent on an annual basis for the quarter ending September 2017, following an increase of 2.6 percent in the earlier three-month period. The index was supported by rising employment levels and supply shortages in the housing sector. However, there was a drop in the month-on-month figures, with prices slipping to 0.8 percent in September from an upwardly revised 1.5 percent in August. 

Industrial output rose to five-month highs of 1.6 percent in August from a year earlier, following a 1.1-percent increase in July. The August numbers were led by manufacturing activity, which expanded by 2.8 percent. For the month, industrial production rose by 0.2 percent, slightly lower than the 0.3 percent recorded in July. 

The UK’s trade deficit expanded by a further £1.39 billion in August, widening to £5.63 billion from £4.24 billion at the end of July, the highest since September 2016. The deficit was led by a record rise in imports to £55.78 billion and a sharp fall in the trade gap of goods. Imports during the month increased by 3.2 percent, while exports rose by a meagre 0.6 percent. Canada accounted for more than 32 percent of the gross import volumes into the country, with exports from the UK to South Korea coming in at 32.5 percent of the overall volume.

Inflation numbers continued their upward trajectory, with consumer inflation rising to 3 percent in September from a year earlier. Core inflation, which excludes the volatile movements in the prices of food and energy, however, remained unchanged at 2.7 percent from the previous month. In stark contrast, Producer Price Index input prices remained unchanged at 8.4 percent year-over-year, while output prices of goods produced by manufacturers in the UK rose by a slower 3.3 percent compared to 3.4 percent in August.

The UK’s unemployment rate for the three months ending August 2017 fell to its lowest level since 1975. The number of unemployed persons declined to 4.3 percent, unchanged from July, and from 4.5 percent in the March-to-May period. Year-on-year, the unemployment rate declined from 5 to 4.3 percent, with as many as 215,000 individuals finding employment. The average weekly earnings also saw an uptick, with a 2.2-percent rise in nominal income, including bonuses.

Retail sales in the UK slowed to 1.2 percent year-on-year in September, after registering a 2.3-percent growth the previous month. For the month, retail sales were down 0.8 percent, the lowest since March of this year, after rising to 0.9 percent in August. Sales at non-food centres declined by 6.7 percent during the month, offsetting the 3-percent gain at household-goods stores. In addition, retail sales for the quarter ending September rose by a mere 1.5 percent, the slowest since the second quarter of 2013. 

The UK’s economy expanded at 0.4 percent for the quarter ending September, according to preliminary data. The gross domestic product (GDP) numbers for the third quarter came in slightly higher than the 0.3 percent recorded in the second quarter and beat market expectations of a 0.3-percent growth. Compared to the same period in 2016, the economy expanded at 1.5 percent, unchanged from the previous quarter. The third-quarter 2017 GDP figures were broadly driven by services, production and agriculture, with construction activity contracting for the second straight quarter.

The Monetary Policy Committee of the Bank of England is expected to announce its interest-rate decision on November 2, 2017. With the UK economy gradually picking up pace and inflation rising on the back of a weaker currency, the UK’s central bank may finally go ahead with a rate hike for the first time in a decade, although it is widely expected to leave the monthly government and corporate-bond purchases untouched at £435 and £10 billion respectively.

 

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