UK GDP Should Show Best Growth In 3 Years

We end this week with arguably the most important data of the past five days for the UK with the publication of the preliminary estimate of GDP for Q3. Survey data from the three-month period was strong – there is no doubting that – with PMI releases hitting multi-year highs across the services and manufacturing sectors and a decent rise in the construction measure too. Office of National Statistics output figures, the GDP compilers, have been less encouraging towards the end of the quarter with manufacturing and construction output slipping back. This stymied our desire to predict a figure of 1.1% growth on the quarter but we remain above consensus at 0.9% – consensus remains at 0.8% – and 1.6% growth on the year.

As we stated in Tuesday’s morning update there is the very real possibility that today represents the high-water mark for GBP this year – that place where the wave finally broke and rolled back. We base this on an increase in doubts around the sustainability of the UK recovery given the challenges that real wage squeezes are presenting to most consumers.

Debenhams sounded very cautious in its most recent earnings release, warning of “very difficult conditions” on the high street. You would expect that they are not the only retailer who are experiencing this at the moment. We saw in the latest PMI release from the UK’s services industry that the growth shown was mostly from business to business services and companies facing the imminent housing recovery – not the consumer facing company picture.

If we’re right and GDP beats estimates then GBP should go on a little rally this morning. GBPUSD should be targeting the recent highs of 1.6260 while we would hope it provides GBPEUR with a bit of a spine following the recent onslaught by the single currency.

The single currency has had its wings clipped a little following data that showed the Eurozone’s manufacturing and services sectors are still growing, albeit slower than had been thought. The composite PMI fell to 51.5 from 52.4 in September and hopes will be that this shows stabilisation and not retrenchment of any recovery. Italian consumer confidence also disappointed, falling to a 18 month low in October.

Before UK GDP, we receive the latest German IFO number which should slip given recent survey data. Jobs, factory output data and retail numbers have all been on the iffy side lately and we would think that this should lead to a slight tempering of the overall German business climate. The number is due at 09.00 BST.

Over in the US we receive more economic data that had been held back as a result of the recent government shutdown. September durable goods orders are expected to rally by 2%, up from the 0.1% rise in August while Michigan confidence numbers for October are expected to slip a tad.