The NHS, education and the environment have been some of the recent sticks that the UK’s political parties have beaten each other with, and today gives them another in the form of the first reading of UK GDP for the first three months of this year. With nine days to go until the UK electorate huddles in draughty church halls and sports centres to cast their vote, the polls are still showing an almost certain hung parliament and coalition chaos in the aftermath.
UK GDP due for Q1
Expectations are for a dip lower from Q4’s 0.6% with markets looking for around 0.5%. PMIs and business surveys have been strong through Q1, however, as they tend to, this has not been seen in the official output numbers. Industrial and manufacturing numbers from the UK economy through January and February have been poor but the services sector has made up for this. I think that this continues today. I made this argument on Bloomberg this morning..
Q1 has been marked by stronger household consumption, lower energy and fuel bills and a lack of real political ructions. Investment is higher, real wages are rising at the best level since 2008 and unemployment is falling. If today’s data is set to show anything, maybe it’s that GDP is a rather inaccurate measure for just how well an economy is performing. But let’s leave that argument for another day.
Crowing coalition?
If I am correct then we can expect both the Conservatives and the Lib Dems to be rather vocal about their economic achievements within their coalition government and the airwaves will be thick of warnings about shifting from the course. Undecided voters will decide this election and a good number could easily see the ‘incumbent factor’ increase – voters more scared of change than energised by it voting to keep the status quo. We saw similar in the last week of the Scottish referendum.
Varoufakis sidelined
News from Greece was greeted positively yesterday as Finance Minister Varoufakis had his wings clipped in the negotiations with Greece’s creditors. The news that he will no longer be part of the day to day technical negotiations saw the euro rally, Greek bond yields heal and Greek stocks rebound. If that’s not a blow to the ego then I don’t know what would be. That being said, if a deal is done then I would think most Greeks wouldn’t care who was at the table at the time.
Last Monday’s decision to pool all remaining public cash reserves in an account at the Bank of Greece should allow the country to muddle through for a couple more weeks, but pressure will likely continue to mount. There is a EUR1.5bn payment of public sector pay and wages due this Thursday. Issues around European Central Bank support for the Greek banking sector remain but as long as Greek government is still able to be used as collateral then the Greek banking system should remain upright.
Any negative liquidity shock could lead to an overdue payment to the IMF – EUR200m due in the first week of May – and would likely require the instalment of capital controls preventing the free flow of cash out of the economy.
Looking for US confidence
US consumer confidence is due later today and is expected to rise to 102.2, the highest since January. As with all things in the past quarter in the US, a slump has been seen but the protracted fall in gas prices alongside continuing improvements in jobs markets should see confidence recover. USD strength may not be seen until the Federal Reserve releases its latest decision tomorrow night; a focus on recovering inflation and a justification that the recent softness in data is transitory will give a dollar a little fizz tomorrow.
