Upcoming UK Q4 GDP & Monetary Policy Implications

uk q4 gdp

Tomorrow there is a host of economic data out of the UK just before the markets open. So, we could be looking at a pretty active session for cable.

Out of all the numbers to be released, the one to get the most attention will be the quarterly and monthly GDP figures.

It’s not just because they are key economic indicators, but because they play a crucial role in monetary policy decisions.

Over the next couple of months, the BOE is going to have to make a decision on negative rates. This decision will depend, in part, on the evolution of the economy.

Monthly data will also be relevant, because it’s from the crucial month of December, including the uncertainty ahead of Brexit.

What to pay attention to in the data

There are two important scenarios to consider.

First is whether the UK managed to seek out some growth in the prior quarter. This would keep it from falling back into a technical recession like Continental Europe. It would also make it closer in line with the US.

This scenario would suggest that UK monetary policy would likely divert from the EU. It would, therefore, stay more in parallel with the US.

So, a broadening of the difference between the EUR and GBP, but a steadying in cable.

The other scenario is to compare December data with the rest of the quarter. Since that comes from the middle of the lockdown period, it is likely to be more representative of the data we’ll see for January and February.

Sure, it’s likely to have been distorted a bit because of the uncertainty of Brexit. But the following months also have uncertainty regarding how the rules are being implemented.

What we are looking for

Quarterly UK GDP change is projected to come in at 0.5%, compared to 16% in the third quarter. Much of that growth is expected to be from the first month and a half of the period.

In any case, a result in growth territory is likely to keep the pound firmer, as it would imply the BOE is less likely to consider negative rates.

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