Sterling climbed against the dollar on Monday after the EU and UK announced that they will “go the extra mile” and continue with Brexit negotiations. 

After last week, when the pound fell due to concerns over a no-deal Brexit, this week the pound rose reversing some of its losses. The Prime Minister Boris Johnson and European Commission president Ursula von der Leyen agreed during a “constructive” call on Sunday to “go the extra mile” in order to secure a trade deal for the UK. With no deadline for negotiations, British officials have said that negotiations could continue until Christmas. 

What do analysts say?

Whatever happens to the pound is going to have an impact on Thursday’s Bank of England meeting which is expected to remain on hold. Analysts believe that if markets are worried and the pound falls on the prospect of a no deal, then the BoE might increase its QE purchases within a short period of time. Nonetheless, pound volatility as we near the end of 2020 is to be expected. 

Goldman Sachs has predicted that the pound will rise if there is progress towards a deal or a no-deal Brexit is avoided. Barclays analysts explained that there will be risks to the pound until an agreement is reached. As the Financial Times reported, some analysts have changed their mind, quoting Gregory Perdon, co-chief investment officer at Arbuthnot Latham, who had “second thoughts” about the pound rising, but he reiterated his hopes for a deal as  “both parties are probably better off economically with a deal.” “Let’s hope rationality wins in this instance,” he added. 

Others more pessimistic, have warned that the pound’s gains might be short-lived, as both the UK and EU have failed to reach a deal repeatedly in the past.

Talking to Reuters, Junichi Ishikawa, senior foreign exchange strategist at IG Securities said: “This is a temporary move higher in the pound, but it is still not clear that a no-deal scenario can be avoided.”

Whether there is a deal or no deal, some investors feel that the pound could still move sharply.

What’s next?

The UK left the European Union on 31 January 2020, but the ongoing negotiations between the UK and EU officials are focussing on securing and negotiating a deal about the rules that will determine and define the kind of relationship the two parties will have post-Brexit. Michel Barnier has commented that Boris Johnson has made a mistake for hoping to negotiate an agreement within only 11 months.

The two sides have until 31 December 2020 to agree a trade deal and, if there is a deal, border checks and taxes will be introduced. The transition period ends on 31 December, and tariffs and quotas will be introduced in the event of a no deal.

A joint UK-EU statement stated that “despite the fact that deadlines have been missed over and over we think it is responsible at this point to go the extra mile."

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The pound was pulled from different directions yesterday, as on the one hand, the Bank of England hinting at negative interest rates pushed it lower, and on the other hand, positive Brexit news helped lift it.

The pound fell after the Bank of England said that it is considering how to use negative interest rates and it will discuss with regulators how to efficiently implement them. The pound dropped sharply after the announcement.

As quoted on Bloomberg, Valentin Marinov, head of foreign exchange research and strategy at Credit Agricole SA, said: “Negative rates are the nuclear option. It could ultimately push the pound into uncharted territory of losing whatever is left of its rate advantage.”

A Brexit Trade Deal is Still Possible

Despite the negative news, there was a glimpse of positivity on Thursday after the EU Commission President Ursula von der Leyen said that she remains "convinced" that an EU-UK trade deal is still possible, which helped the pound recover. Von der Leyen, speaking to the Financial Times, said: "I am still convinced it can be done. It is better not to have this distraction questioning an existing international agreement that we have, but to focus on getting this deal done, this agreement done - and time is short." Another EU diplomat said that "we should not overreact... We will continue negotiations because there are two separate tracks: one is the one which the UK has decided to violate, and the other is the future relationship."

If markets maintain a similar view that a trade deal is possible then the pound will be supported.

Bank of England’s Negative Interest Rate Surprise

After the Bank unexpectedly said that it was considering the possibility to cut interest rates to 0% or below in the coming months, to help support the economy, the pound fell.  There have never been any negative interest rates before in the UK and if the Bank moves ahead with changing the rates to record lows, this could really shake the financial system, especially due to the UK’s current account deficit. As Pound Sterling Live noted, this could leave “the UK's financial system, and Pound Sterling in particular, exposed to capital withdrawals from foreign investors.”

The shocking revelation was found within the Bank’s minutes to the meeting where it stated that it would start a "structured engagement" with the Prudential Regulation Authority in order to potentially cut interest rates to negative.

Senior market analyst at Western Union, Joe Manimbo said: "The U.K. Pound staged a swoon after the Bank of England dropped clear signals that it was edging closer to implementing negative borrowing rates. The big news was that officials were actively studying plans to push rates below zero given the ‘unusually uncertain’ economic outlook. Central bankers noted better data of late but signalled heightened concern related to Covid uncertainty, expectations of a sharp rise in unemployment and potential Brexit shocks."

However, some economists believe that the Bank will not push interest rates into negative territory and the recent news is part of the Bank’s research into negative interest rates rather than something more solid and definite.

But as Bloomberg said, a no-deal Brexit might just be the trigger for the BoE to use negative rates: “It’s becoming increasingly likely that if the economy is blown off course next year, the central bank could employ sub-zero rates.”

With the UK struggling to contain coronavirus infections, the imposition of new lockdown restrictions, unemployment and a disruptive Brexit could make the situation in the UK very difficult and push the Bank to make some hard decisions.

 

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The pound rose against the dollar on Wednesday, as the greenback was under pressure following the release of disappointing US retail sales figures for August.

The GBP/USD pair rose higher to weekly tops, despite the Brexit impasse and the latest saga with Boris Johnson’s Internal Market bill.

Wednesday's main event was the highly anticipated FOMC monetary policy decision - where rates look set to remain stable at near zero - and updated economic and inflation projections, ahead of Thursday’s BoE meeting. Due to the key FOMC event, trading opportunities and volatility around the GBP/USD currency pair might arise ahead of the event.

Brexit

The pound was also supported after Justice Secretary Robert Buckland hinted the Government could amend the Internal Market Bill in order to compromise with Tories criticising the PM for breaking an international treaty and avoid a rift within the Conservative party. The government’s change of heart could help soften the EU’s stance and resume negotiations with the EU.

Buckland said that the original plans in the Bill could be made "acceptable to all Conservative colleagues".

With investors digesting the political reality and remaining confident that a deal is still possible, the pound was lifted after the initial news of the Internal Market bill.

"Outsized moves in GBP ... have injected a sizeable risk premium in GBP. It's now trading at a decent discount on our short-term valuation, underscoring that some of the recent Brexit news has already been priced in. At the very least, this backdrop suggests that in the coming weeks GBP would benefit more from good news rather than sink further on bad news. We still expect more volatility but risk/reward favours taking profit at these levels," said Mark McCormick of TD Securities.

Bank of England Policy and Interest Rate Decision on Thursday

The Bank of England will try and assess on Thursday the UK’s economic recovery and whether it needs to adjust its policy to offer more monetary support. For many economists, now it is not the right time to make significant changes to its package. Adding to the Bank’s woes about the UK economy comes the UK inflation which fell to its lowest level in nearly five years, to an annual 0.2%, far away from the Bank’s official 2% target.

The Bank is expected to take action in its November meeting, as the economy slowly recovers. According to the Organization for Economic Cooperation and Development forecast released on Wednesday, UK gross domestic product would shrink by 10.1% this year, while the economy is forecast to rebound in 2021. Given the political and economic uncertainty, the BoE will possibly wait and see what kind of fiscal stimulus is necessary to support the economy. But Reuters noted that “While the central bank is widely expected to hold fire, policymakers are likely to conclude that downside risks to the economy are rising for the economy due to rising Brexit uncertainty and renewed restrictions on social activity.”

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Sterling rose to an eight-month high due to dollar weakness and after Federal Reserve Chairman Jerome Powell said on Thursday that the Fed will tolerate inflation above 2.0%. This gave investors hope that the Fed will not try and control economic growth, something that could hurt the US dollar in the near future. On the other hand, on Friday, after Bank of England Governor Andrew Bailey’s speech, the pound remained unmoved. Both Bailey and Powell gave their speeches at the Jackson Hole central bank symposium which was held online this year rather than at the usual ski resort in Wyoming.

Fed’s decision marks a significant shift in monetary policy

The Federal Reserve has approved a significant change in the way it sets its interest rates by abandoning the usual practice of raising them to control higher inflation, something that will leave US borrowing costs extremely low. By signalling that it wants inflation to rise moderately above its 2% target, the Fed confirmed that inflation targeting in a world of lower interest rates is a thing of the past.

Andrew Bailey’s speech

On Friday, the Governor of the BoE delivered his keynote address to fellow central bankers online and not from the actual ski resort in the Grand Tetons where the conference was traditionally organised since 1982.

In his speech, Bailey said that central banks have a lot of strength to use quantitative easing to manage crises, such as Covid-19. As he noted characteristically, “Go big (and fast) or go home.”

The Bank of England governor did not provide details over short-term policy or on the UK economic situation, but he did reassure the financial community that the Bank will be able to deal with future crises: “We are not out of firepower by any means, and to be honest it looks from today’s vantage point that we were too cautious about our remaining firepower pre-Covid. But, hindsight is a wonderful thing when you have it.”

He also said that the Bank won’t seek to restrict monetary policy until there is significant economic progress: “The committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. This important step is intended to ensure monetary conditions do not tighten prematurely when there are some initial signs of an economic recovery.”

According to Bailey, QE will be “more long-lived” and that the Bank has the power to fight recessions. In regard to Jerome Powell’s comments from yesterday, Bailey said that these suggest that flexibility can be useful for monetary policy and that a different exchange rate environment could justify different approaches.

The Bank of England increased quantitative easing by £745 billion in June, and in March it cut its main interest rate to a record low 0.1%. A paper with the Bank’s conclusions will be published alongside Bailey’s speech.

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Sterling has rallied after better than expected forecasts from the Bank of England. The Bank noted that the economic standstill in the period between April and June was “less severe” than anticipated. While the UK economy has considerably shrunk this year due to the Coronavirus, it is now on a path to recovery, slowly picking up again.

Bank of England Monetary Policy Meeting

In its Thursday morning meeting, the Bank decided to keep UK borrowing costs at record lows, interest rates at just 0.1%, and its quantitative easing programme at £745bn.

According to its forecasts, UK recovery will take longer but the slump will be less severe. The Bank said that “the fall in output in Q2 is expected to have been less severe than was assumed in the illustrative scenario in the May Report. In that scenario, it was assumed that restrictions would be gradually unwound between early June and late September, but they were lifted earlier.” In terms of recovery, this will take time:

“In the MPC’s central projection, GDP continues to recover beyond the near term, as social distancing eases and consumer spending picks up further. Business investment also recovers, but somewhat more slowly. Unemployment declines gradually from the beginning of 2021 onwards. Activity is supported by the substantial fiscal and monetary policy actions in place. Nonetheless, the recovery in demand takes time as health concerns drag on activity. GDP is not projected to exceed its level in 2019 Q4 until the end of 2021, in part reflecting persistently weaker supply capacity. Given the scale of the movements in output, as well as the inherent uncertainty over the factors determining the outlook, the evolution of the balance between demand and supply is hard to assess.”

Labour market and employment

The Bank also warned that unemployment will rise sharply by the end of the year. The Bank’s monetary policy committee said:

“Employment appears to have fallen since the Covid-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes. Surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind. In the near term, the unemployment rate is projected to rise materially, to around 7½% by the end of the year, consistent with a material degree of spare capacity.”

The unemployment rate is currently 3.9%, and the government’s furlough scheme is helping employers to keep their staff.

The Monetary Policy Committee highlighted the threat of unemployment, which will remain high next year too. The Bank’s economists said that the “Labour market slack persists over the first half of the forecast period, as unemployment is judged likely to decline only gradually after peaking in Q4. The gradual decline in part reflects an expectation that hiring will pick up relatively slowly, consistent with uncertainty affecting companies’ demand for labour. In addition, the MPC judges that there is likely to be some reduction in the efficiency with which people can find jobs. That tends to happen as unemployment rises, as some people take time to find new jobs, and their skills erode. Moreover, in the present conjuncture, the dispersed effects of Covid-19 on economic activity across sectors are judged to be likely to result in a greater degree of mismatch than usual, given differences between the sectors from which workers have been made unemployed and the sectors in which firms are posting vacancies.”

Speaking at a press conference on Thursday to discuss the Bank’s Monetary Report, Bank of England governor Andrew Bailey said that the forecast that unemployment might almost double to 7.5% is a “very bad story.” But he also said that it will eventually fall back to 4.5% by the end of 2022.

Negative Interest Rates?

The Bank of England said that it is currently considering the possibility of imposing negative interest rates in the UK, as other banks including in Japan and the Eurozone, have done. This means that banks will be charged for leaving money with the central bank, so they are forced to lend them. The Bank is currently deciding whether this will impact on the financial system, economic confidence and bank profits, as well as savers. According to the Bank, “the effectiveness of a negative policy rate will depend, in part, on the structure of the financial system and how the policy transmits through banks to the interest rates facing households and companies. It will also depend on the financial and economic conditions at the time.”

 

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The British Pound has remained under pressure on Friday, especially after Thursday’s losses due to disappointing news that the Brexit negotiations have hit an impasse. Today’s (24/07/2020) better than expected retail sales did not help push the pound higher against its major rivals.

Brexit and Covid-19

Despite positive macroeconomic data, the coronavirus pandemic and concerns about the state of the Brexit trade negotiations have weighed on the pound. As the Guardian reported, on Friday morning the release of “the retail figures are doing little to support UK stocks with the FTSE 100 down 1.36% and the more domestically focused FTSE 350 down 0.6%.”

Positive Retail Sales’ Numbers

The easing of lockdown in mid-June helped UK retail sales beat forecasts in June. The Office for National Statistics has reported a 13.9% month-on-month rise in UK retail sales last month, marking an 8% uptick. Even for former Bank of England policymaker Andrew Sentence, the figures highlighted that the UK was on its recovery since the Covid-19 outbreak. The retail sales’ increase was the result of consumers spending for DIY and home improvement products due to the lockdown, with shops selling hardware, furniture and appliances doing particularly well, and reaching near-pre-lockdown sale levels.

With the easing of lockdown measures, consumers preferred real physical shops rather than online shopping, as the ONS noted that the proportion of online sales retreated from its record peak in May. Online spending, however, remained at 31.8%, higher than February’s 20%. UK total retail sales are now just 0.6% lower than February before the lockdown.

ONS deputy national statistician Jonathan Athow said:

“Retail continued to recover from the sharp falls seen in April, with overall sales now almost back to pre-pandemic levels. But there are some dramatic differences in sales across the retail industry. Food sales continue above their pre-pandemic levels due to the closure of cafes, restaurants and pubs. Online sales have risen to record levels, and now count for £3 in every £10 spent. On the other hand, clothing sales remain depressed and across the high street sales in non-food stores are down by around one-third on pre-pandemic levels. The latest three months as a whole still saw the weakest quarterly growth on record.”

With the exclusion of fuel sales, due to the lockdown and limited travelling, the level of sales was 2.4% higher than in February. According to figures, Britain’s economy shrank by more than a quarter in March and April and recovered slightly in May.

Is the UK economy recovering?

Former Bank of England policymaker Andrew Sentence said that the figures highlighted the UK was on its recovery since the Covid-19 outbreak. The Bank of England’s chief economist, Andy Haldane, has also pointed to a V-shaped recovery with the economy growing by around 1% a week, something that many of his colleagues have questioned. The British Retail Consortium said that spending among large high-street chains was 3.4% higher this June than last year.

As investors await the release of more figures to confirm expectations of a sustained economic recovery, the pound will remain under stress with Brexit as well as the growing number of deaths from Covid-19. If you are buying a home overseas or want to transfer funds to family and friends living abroad, get in touch with our friendly  Universal Partners FX team. UPFX’s dedicated foreign exchange specialists can help you access the most competitive exchange rates and make your currency transfers stress-free.

The British Pound could strengthen against the Euro and Dollar in the coming weeks if economic data continues to beat expectations, according to the latest projections by economists. But, analysts at Bank of America have told clients on Tuesday that Sterling was more like an emerging market currency. Lead analyst Kamal Sharma said that the currency’s movements the last four years since the UK Brexit referendum have been “neurotic at best, unfathomable at worst.”

Pound: An emerging market currency

It is not the first time that the pound has been described as an emerging market currency. Last year, in September, Bank of England governor Mark Carney said that Brexit-related volatility had made the pound act like an emerging market currency.

According to this week’s reports, “Sterling’s spreads and implied volatility – the future range investors expect GBP to move in – remain far wider than other major world currencies, such as the U.S. dollar, euro or Japanese yen, and resemble something closer to the Mexican peso.” Brexit uncertainty and the possibility of negative interest rates have hurt investor sentiment, BoA analysts said.

Better than expected data could offer support for Sterling

But Pound Sterling Live stated that if UK economic data continues to come in better than expected the pound will be supported. It did note, however, that “those looking for a stronger Sterling will continue to have to exercise patience in the near-term.”

With recent economic figures beating expectations and markets underestimating how quick the UK’s economic recovery will be, there is a “decisive shift in momentum.” Tuesday’s PMI data for June were better than expected with the Markit/CIPS Manufacturing PMI at 50.1, the Services PMI at 47, and the Composite PMI at 47.6, all above forecasts.

According to analyst at DNB Markets Kjersti Haugland, things are even more positive as there is a significant rebound of the economy. He said: "A literal interpretation of the figures suggests that manufacturing activity stabilised in June while service sector activity fell further, as a reading below 50 indicates a contraction compared to the previous month. However, some of the respondents may make a pre-Covid-19 comparison instead. Therefore, the sharp increase in June suggests activity is picking up quicker than expected.”

The British Pound does well when the UK economy is growing, unlike the US Dollar which strengthens when the economy is in decline due to its safe haven status. So, if the UK economy continues to grow and economic data comes out stronger than expected, then the pound will find support. This coupled with an easing of lockdown restrictions and the opening of businesses will help the economy recover. As the PM Boris Johnson announced on the 23 June, pubs and restaurants, campsites, hotels and holiday homes will reopen on 4 July. Other businesses such as spas, nail bars, casinos and swimming pools will remain closed.

However, a stronger Pound might be a distant possibility for now, as Sterling was the worst performing currency the past month out of the G10 and was “near the bottom of the pack which reflects a short- to medium-term trend is in place against many major currencies and this will prove tough to crack.”

 

With Brexit uncertainty to continue due to the ongoing negotiations and the harsh stance of the Bank of England both on quantitative easing and interest rates, the pound will remain volatile.

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The UK economy has shrunk sharply in the first quarter of 2020, according to the Office for National Statistics (ONS). Sterling fell initially, but then stabilised after the British government extended its furlough scheme until the end of October.

GDP

GDP fell 2.0% fall in the three months to March after there was no growth in the three months to February. Particularly, March was a terrible month for the economy, as the GDP dropped by 5.8%, marking the worst performance since the ONS started calculating monthly data back in 1997.

While the UK economy before the Covid-19 lockdown was not faring well, contracting by 0.2% in February, as the coronavirus pandemic started, in March, however, it suffered dramatically. The drop in the first three months is considered to be the biggest quarterly drop in activity since 2008 after the collapse of the Lehman Brothers and the beginning of the global financial crisis.

Yesterday, chancellor Rishi Sunak warned that the UK recession was “already happening”, and that things will not improve in the near future. Last week, the Bank of England forecast that the UK economy might contract by 25% in the April-June quarter, which could be the deepest recession in three centuries.

Decline in Services, Manufacturing and Construction

The ONS reported that in March, with the beginning of the lockdown, the GDP contracted by 5.8% with the services sector shrinking by 6.2% during March, manufacturing output dropping by 4.6% during the month and construction contracting by 5.9%.

The Office for National Statistics explains that there is a close connection between the lockdown measures and the drop in economic activity:

In response to the coronavirus (COVID-19) pandemic, public health restrictions and social distancing measures have been put in place in the UK, leading to a widespread disruption to economic activity. These measures have impacted upon the spending behaviours of consumers as well as how businesses and their employees operate. It has also affected the provision of services provided by government, including health and education.

Services output decreased by 1.9% in Quarter 1 (January to March) 2020, the largest quarterly fall since records began. Production output fell by 2.1% in Quarter 1 2020, driven by declines in manufacturing. Construction output decreased by 2.6% in the first quarter.

According to Jonathan Athow, deputy national statistician for economic statistics, in March, the coronavirus pandemic hit the economy hard, with certain industries such as services and construction declining sharply and others, such as IT support and pharmaceuticals seeing growth.

Key points from the release:

The release reflects the dire effects of the coronavirus pandemic and the economic disruption to various sectors. March was the worst month as education fell by 4.0% due to school closures, wholesale and retail trade and repair of motor vehicles and motorcycles by 10.7%, food and beverage service activities by 7.3% and accommodation by 14.6%. The travelling sector was also hit falling by 23.6% while transport equipment-making declined by 20.5%.

What economists say:

Talking on Sky News, Sunak said that the government was positive and could “emerge stronger” on the other side. He said: “In common with pretty much every other economy around the world we’re facing severe impact from the coronavirus. You’re seeing that in the numbers. That’s why we’ve taken the unprecedented action that we have to support people’s jobs, their incomes and livelihoods at this time, and support businesses, so we can get through this period of severe disruption and emerge stronger on the other side.”

However, Tej Parikh, chief economist at the Institute of Directors, fears that Britain will not “emerge stronger” from the lockdown as he believes that UK firms will remain under pressure:

While countless companies have made adjustments with admirable speed, many will find it difficult to operate at anything like normal capacity under social distancing rules. The furlough scheme has undoubtedly staved off redundancies, and the new flexibility provides businesses a better chance of rebooting.

The Treasury will need to continue innovating to kickstart any recovery. The Government’s loan scheme provided ready cash, but now leaves many firms saddled with debt. Unless this is managed well, it will drag on business investment for long after the lockdown ends.

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The pound has dropped to its lowest level since 27 December, after the ONS released its latest GDP estimate for the month of November.

ONS numbers

According to the ONS, the UK GDP grew by 0.1% in the three months to November, while it shrank by 0.3% in November 2019. The contraction in November was worse than expected as uncertainty over the general election and the threat of crashing out of the EU without a deal in October weighed on the economy.

As the ONS figures demonstrate, the services and production sectors grew by 0.1% and 1.1%, respectively in the three months to November 2019, but the production sector fell by 0.6%, its second consecutive rolling three-month decline, while manufacturing output fell by 1.7%.

The ONS stated: “Production fell by 1.2% in the month of November 2019, following growth of 0.4% in October. Within production, manufacturing fell by 1.7%. This was largely driven by large falls in the manufacture of transport equipment, food, and chemicals. These industries were also the main drags on growth in April 2019, just after the UK's original planned date to exit the European Union as shown in Figure 5. This may be indicative of some changes in the timing of activity around the second planned departure in October.”

Today’s figures confirm that the UK economy has slowed for two consecutive months, shrinking in April-June, then showing 0.4% growth in July-September, something which has helped to avoid a recession. It has slowed again to 0.2% in August-October, and 0.1% in September-November.

The Office for National Statistics’ head of GDP, Rob Kent-Smith, said that UK growth was at its lowest level since 2012: “Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing. The UK economy grew slightly more strongly in September and October than was previously estimated, with later data painting a healthier picture. Long term, the economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012.”

UK economy stagnant

The National Institute of Economic and Social Research (NIESR) noted that the “latest data confirm that UK economic growth had petered out at the end of last year. GDP was virtually flat in the 3m to Nov & latest surveys point to further stagnation in Dec. The short-term economic outlook is for more lacklustre growth.”

More importantly, the idea of the Bank of England having to cut interest rates has resurfaced as investment strategists and traders have mentioned.

Bank of England: Interest rate cut?

The latest GDP data has boosted the chances of UK interest rates being cut soon, possibly at the Bank of England’s meeting at the end of January. Matthew Cady, investment strategist at Brooks Macdonald, said: “UK GDP for November has come in at negative -0.3%. This is quite a bit weaker than had been expected. Consensus had been looking for zero growth month on month. Against this, both September and October were revised up by 0.2% and 0.1% points respectively. The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting.”

Peter Dixon, economist at Commerzbank, said that the possibility of an interest rate cut has risen to 50%: “With a growing chorus on the MPC apparently open to the prospect of a rate cut, if the data points in that direction, today’s release might well tip the balance of one or two members ahead of the meeting on 30 January, where the market probability assigned to a 25 bps cut has risen to 50% versus 5% at the start of last week.”

However, it is also wise to be positive and consider the GDP numbers as indicative of a specific time period rather than of a future trend, as business confidence can return after Boris Johnson’s election. As chief economist at PwC, John Hawksworth, clarified, today’s data relates to a specific “period of heightened economic and political uncertainty” and that “our latest survey of the financial services sector with the CBI does suggest some boost to optimism since the election.”

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