On the 9th of November, Caitlin Morrison of INDEPENDENT news reported that the pound dipped after rallying in recent weeks. This was following recent Brexit talks which looked positive. Following the release of UK data showing a successful hike in productivity and economic growth on Friday, the pound dropped against the dollar and the euro.
The 0.6% growth in the UK economy in the three months to September was recorded as the highest quarterly growth rate since 2016. The Fourth quarter of 2016 had seen a growth of 0.7%. The figures predicted by the Bank of England and other forecasters were expected to be much better had it not been for the flatlining recorded in the last month of the third quarter. The buoyant growth in July was upset by the decline in August and September leading to a reduced but record-breaking quarterly growth rate.
Growth and decline
The ONS reported, that in September UK manufacturing grew 0.2% following a slight contraction in August. Construction grew 1.7% after deep falls in output during the snowstorms early this year. But services, which make up the bulk of the UK economy contracted 0.1% during the month.
In the third quarter, business investment fell 1.2%, the worst three- month performance since early 2016. It was also the third quarter of contraction in a row – marking the worst run since the last recession. Surveys suggested Brexit-related uncertainty is causing firms to freeze spending.
The bank of England expects growth in the final quarter to decelerate to 0.3%. There was slightly better news from the ONS on UK trade with the statistics agency reporting the trade deficit fell to £2.9bn in the three months to September, down from £6.1bn.
Just after these statistics were revealed in the UK, the US indicated that a pre-Christmas hike was on the cards. The pound sterling dropped more than 0.3% against the greenback to $1.3021 and fell 0.21% against the euro to €1.1471. The US federal reserve’s indication that it will hike rates in December to strengthen the dollar and the stagnation of the British economy in September has only been compounded by Brexit talks
Schroders senior European economist, Azad Zangana said “The economy is not forecast to pick up in the near term, we expect the UK fourth-quarter growth to be very weak as Brexit paralysis takes hold. Assuming the government can successfully negotiate the withdrawal agreement with Brussels and ratify it in parliament, then we could see a rebound in growth early next year. However, a failure to complete a deal which would mean a no deal or cliff-edge Brexit is likely to cause a further slowdown in activity which could be enough to tip the UK into recession.”
The pound sterling has thus been gripped with volatility amid uncertainty about whether the UK will leave the EU next March without a trade deal in place. A lack of clarity on the direction of Britain’s future has caused a weakening in optimism for the economy and recent growth speculation.
The Sterling’s recent struggles due to Brexit have not been helped by comments from the former foreign secretary and leading Brexiteer Boris Johnson. Johnson called on his former Cabinet colleagues to stage a mutiny over Theresa May’s Brexit plans. Boris Johnson comments in a newspaper column that the prime minister was “on the verge of a total surrender” to Brussels added to the fire. There has been pressure on the other side of the debate from MPs as Mr Johnson’s younger brother Jo Johnson resigned last week saying the UK was “barreling towards an incoherent Brexit’ and calling for a fresh referendum.
The former education secretary, Justine Greening – who backed Remain in the 2016 vote joined the list of critics. She told the BBC on Monday that Mrs May’s plans represented “the worst of all worlds” and that MPs would reject it.
Head of research at London Capital Group, Jasper Lawler said: “As pressure mounts on May, Brexit and politics will be critical once again to the pound this week.” While talks continue the Sterling will remain in a precarious position. As to will much of the UK economy.
Many experts also point to World cup spending as being a major factor in some of the recent reports positive feedback. With uncertainty over Brexit still remaining the Sterlings strength on the economic market will be watched closely by business owners and politicians.
The fate of the UK economy relies a lot on the Brexit deal, With negotiations on going and political moves being made, we stull have to wait for a final outcome and its impact on the economy.