Article / 25 November 2016 at 5:59 GMT

3 Numbers: UK GDP data to show if uncertainty hurt business investment

Blogger / MoreLiver's Daily
  • Britain's third quarter GDP release will attract widespread scrutiny
  • Brexit process uncertainty is likely to have hurt business investment
  • The US goods trade deficit expected to increase on the stronger US dollar
  • US services PMI should have picked up, but job creation is near multiyear lows
By Juhani Huopainen

It’s a quiet day on the data front today. The US Thanksgiving holiday has pushed many investors to take an extended weekend. Next week brings us the US jobs report, fresh GDP estimate and personal income data, and then we’re off to December’s nerve-wracking event list.

Italy’s factory orders (0900 GMT) and retail sales (1000 GMT) are unlikely to create much of a storm, as the referendum on constitutional reforms to be held on December 4 is expected to result in a “no” vote anyway.

British consumer spending is likely to be hurt by higher inflation and the weaker pound, and anxiety over how the Brexit process will play out could curb investment. Photo: iStock

Probably today’s most important data piece will be the UK GDP data. Stock markets could be interesting as US index futures rose notably on Thursday despite the market holiday. The rally was probably driven by just the technical break to a new high and eating away the order book on the way up.

 S&P500 trend


Chart source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more.

UK Q3 Gross Domestic Production (0930 GMT). This is the second estimate of the gross GDP, and this time around also includes aggregate expenditure details. The initial estimate saw quarterly growth of 0.6% and 2.2% from a year ago. The current consensus forecast does not include any meaningful changes to headline growth.

Second quarter data was important as it was the first hard post-referendum data point. Growth exceeded expectations, so the weaker GBP, higher inflation outlook and uncertainty of the exit process have not had as much impact as many feared.

Yesterday the Office for Budget Responsibility released its Autumn outlook. The situation could be changing now. The official consensus forecast sees lower growth in 2017 and 2018. Consumer spending is expected to be hurt by higher inflation and weaker GBP.

Business investment is expected to decline due to the decreased growth outlook and uncertainty regarding the outcome of the Brexit negotiations. Until there is some clarification on the future relationship with the European Union, investment should remain slow. The weaker GBP will of course help the export industry, so it is not all negative.

Lower growth in 2017 and 2018 expected, but back to trend after that
 Chart source: UK Office for Budget Responsibility

Lower growth is expected in the UK, due to inflation hitting consumers and uncertainty hurting business investments.

Lower growth to hit consumers, business

  Chart source: UK Office for Budget Responsibility

In the second quarter, business investment rose 1% from the previous quarter. The consensus expects business investments to have increased by 0.6% in the third quarter.

A larger-than-expected reading could begin to put the consensus story into a doubt. That in turn could continue strengthening the GBP. The daily charts suggest however that further GBP weakness could be ahead.

Daily candlestick chart of GBPUSD and EURGBP (
Note the pre-referendum box and the pre-US presidential election box)
GBP technical
US October Goods Trade Balance (1330 GMT).  The goods deficit is expected to have widened in October to $59.2 billion from $56.08 bn in the previous month. The expected deficit is well within the recent historical range and after three months of below-average deficits, the widening would be more than understandable.

Some may have noticed that the US dollar was already getting stronger in October. US dollar strength partly to blame for the increasing deficit. These same people might also conclude that deficits  are probably going to increase in November and December. Larger deficits show that US exports are being hurt by the stronger dollar. This could become a factor that will limit USD strength at some later point.

US 1445 November Services Purchasing Manager Index (1445 GMT).  The Markit’s flash service index is expected to decline slightly to 54.6 from 54.8 in October. The October jump was unusually large and it took the index to its highest level since November 2015. A small decline now is thus not a reason to worry.

Despite October’s high reading, job creation picked up only slightly. The job creation index in September was a three-and-a-half year low. I’d keep a close eye on the job index. If it shows marked signs of improvement, expectations for the next week’s jobs report should begin building up, and this should help push the US dollar higher.

While a December rate hike is practically a certainty now, the reaction function of the Federal Reserve in 2017 is still an unknown to investors. Strong jobs data might make the Fed very comfortable to hike at least twice in 2017.

The press release will be published on this Markit PMI website.

– Edited by Robert Ryan

Juhani Huopainen is a blogger and a macro analyst at MoreLiver’s Daily. Follow Juhani or post your comment below to engage with Saxo Bank's social trading platform.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail