GBP: could GDP put further pressure on the Bank of England?

Sterling pushed higher against the US dollar yesterday, but was relatively stable against the euro. The CBI factory orders were a bit mixed; while factory output increased at the fastest rate since 1995, the new orders component showed that order books slowed slightly more than expected. In addition, Rain Newton-Smith, CBI Chief Economist stated that he believes this is a result of a weakening pound. Every cloud…

The index fell to +10 from +16 in June with forecasted number expected at +12. However, the figure was largely ignored as manufacturing only accounts for about 10% of Britain’s economic output. By way of comparison, the service sector accounts for around 75%.

The day ahead contains the biggest number of the week for the UK with the first release of the second quarter (Q2) Gross Domestic Product (GDP) number. The GDP numbers are released three times: preliminary, second estimate and final. These are releases on consecutive months and it is always the preliminary that causes the most volatility. It is forecasted that the UK grew by 0.3%, but there is some downside risk to this number as the retail sales have been weak of late.

As inflation is still above target, the Bank of England (BoE) will be keen to see how growth has been affected by Brexit. A better-than-expected figure could ease the pressure on the decision surrounding raising interest rates. Meanwhile a weaker figure will put pressure on the BoE to keep rates at a record low.