Release of slightly softer-than-forecast UK 3Q GDP had little effect – with sterling continuing to enjoy an underlying buoyant tone into the end of the year. Focus will again turn to Fiscal Cliff developments in the US this afternoon which is expected to dictate direction. GBP opened early Europe at $1.6247, stg0.8126, closed in NY Thursday at $1.6277 after rate had pulled back from a recovery high of $1.6294 and was edging back from a pullback low of $1.6254 into the close. Rate extended recovery into early Asia to $1.6285 before drifting to $1.6274 as it tracked euro-dollar’s early set back. Announcement that the vote on the Fiscal Cliff Plan B had been pulled acted to weigh heavily on risk, taking rate to a session low of $1.6241, but managed to hold off retesting Thursday lows of $1.6238. Recovery extended to $1.6256 ahead of the European open. Sterling proved more resilient to the risk-off move, which in turn allowed euro-sterling to extend its corrective pullback off Thursday highs at stg0.8161 to stg0.8116 in Asia. Cable trade through the early part of the European morning was confined to a tight $1.6245/55 range. Little immediate reaction to the release of slightly softer-than-forecast UK GDP data, but selling eventually acted to press rate down to $1.6236. Demand here allowed it to bounce to $1.6260 before it settled around $1.6250.
Data released in the UK Friday:
* Q3 GDP revised to +0.9% q/q; unch. y/y
– Q3 Business Investment Revised Up To 3.8% Vs Previous +3.7%
– Oct Index of Services +0.1% m/m; +1.1% 3m/3m; +2.0% y/y
– The strong surge in UK economic growth in Q3 of 1% on the quarter has been revised down slightly by National Statistics to up 0.9% on the quarter while year-on-year growth is now estimated to have been flat compared with a previous -0.1% estimate. The downward revision was reflected in both the production and services sectors. Output of services was revised down to 1.2% from a previously estimated 1.3% and production to 0.7% revised down from 0.9%, mainly due to revisions in mining and quarrying, oil and gas and manufacturing. Household spending was revised down to show a rise of 0.4% on the quarter against an initially estimated 0.6% increase.
* Nov PSNB-X Stg17.539bn vs Stg16.338bn in Nov 2011
– Nov Public Sector Net Borrowing rose compared with a year earlier as income tax receipts fell sharply and spending increased. This is a very poor set of data and at first sight show the damaging impact of slowing growth on tax receipts, which are now down 0.1% in the financial year to November compared with the same period a year earlier. The figures cast further doubt over whether Chancellor of the Exchequer George Osborne will meet the deficit targets for this financial year. Public Sector Net Borrowing stood at Stg17.539 billion in November, up from Stg16.338 billion in the same month a year earlier. Analysts had expected a lower outturn of Stg16.4 billion. The potential nightmare for Osborne is that, while spending is picking up, receipts growth stagnated in November, rising just 0.6% on the year. Worryingly, this included a 12.3% monthly fall in income tax receipts.
* Q3 Current Account Deficit Stg12.834bn Vs Stg17.433bn Q2 – The UK’s current account deficit narrowed sharply in the third quarter due to a sharp fall in visible trade shortfall, figures from National Statistics showed Friday. The current account deficit narrowed to Stg12.834 billion in Q3 from Stg17.433 billion in Q2, a little lower than the median forecast of Stg14.2 billion. The visible trade deficit narrowed to Stg8.33 billion in Q3 from Stg11.04 billion in Q2, when the trade gap widened partly due to the impact of the Jubilee on the data which cut the number of working days during the quarter. The total income balance returned to surplus in Q3 to stand at Stg1.238 billion, following a Stg0.972 billion deficit in Q2. The transfers balance showed a deficit of Stg5.472 billion, up from a shortfall of Stg5.421 billion in Q2.
* GFK: UK consumer confidence fell 7 points this month to -29, almost wiping out the 8-point surge seen in November. GFK said that the slump was driven by a dramatic fall in confidence about the economic situation. Expectations for the economy in the next 12 months fell 16 points to a reading of -31.
EasyForexNews Research Team