UK GDP growth grew at 0.3% in May in line with expectations, helping to lift the beleaguered GBP, but other industrial manufacturing production data was weaker than expected with previous estimates also being revised lower.
Both the services and production sectors grew by 0.3% in the 3 months to May 2019, contributing positively to headline GDP growth. However, construction growth was flat over the same period with zero contribution. The rate for April was confirmed at -0.4% and the outlook remains subdued. It also suggests that if June GDP is less than +0.8% m/m then UK Q2 GDP would turn flat. More evidence of the UK economic slowdown and that we’re almost certainly going to see the economy shrink for the first time in seven years in the second quarter as a consequence of prolonged Brexit, political uncertainty and slower growth in continental Europe.
Although industrial and manufacturing production increased for May following a woeful April, when car production was halted, both data points missed expectations. On the month, industrial output rose 1.4% m/m, which was the expected rebound following the outsized 2.7% m/m decline seen in April. In year-on-year terms, output rose 0.9%, up from -1.0% y/y in the month prior but undershooting the median forecast for 1.1%. The narrow manufacturing production figures showed 1.4% m/m growth and a flat y/y reading, up from respective April outcomes of -1.0% and -3.9%, but well off the median forecast for a 2.3% expansion for the m/m number. The underlying trend remains positive, rising 0.3% over the three months to May in the industrial production figure, benefiting from growth in March and May, which offset the contraction seen in April. Stockpiling activity into the original Brexit deadline of March 29 had been a factor in March.
GBPUSD rallied on the back of the GDP data from lows of 1.2444 to 1.2480, EURGBP dipped to 0.8988 from over 0.9000 earlier this morning and GBPJPY spiked to regain 136.00 from 135.50 at the London open. Sterling, however, remains stressed and biased to the downside in the higher time frames.
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