Alongside the weaker than anticipated GDP print released yesterday, the U.K. economy was weighed down by data which showed a widening of the country's trade deficit in December.
The total trade balance for the U.K. over the final month of 2018 fell to -12100 million, worse than the -11946 million the market expected.
Brexit Stockpiling To Blame
A key driver of the increase was reportedly the rise in stockpiling undertaken by U.K. firms ahead of the country’s scheduled EU departure date of March 29th.
Faced with the uncertainty around Brexit, businesses have ramped up stockpiling operations which drove a significant increase in imports of cars, machinery, and chemicals.
The breakdown of the data shows car imports rose by £1.2 billion over the measured time period. Meanwhile, machinery imports increased by £300 million, and imports of other machinery and chemical items rose by £700 million.
Fears Of A Sharp Currency Fall Build
The sharp rise in imports, which outstripped the levels of exports over the same period, reflects the fear businesses have of the risk of a sharp depreciation in GBP. Also, it reflects business concerns regarding the necessary access to suppliers in the event of a no deal Brexit.
As Brexit negotiations continue as the March 29th deadline approaches fast, the U.K. economy is likely to continue to be hit by uncertainty. Meanwhile, the market will wait and see if the U.K. PM will be able to deliver a deal and avoid a hard-Brexit.
Technical Perspective
GBP/USD is now retesting the broken top of the falling wedge pattern. If the price makes it back below the resistance trend line, support at 1.2693 will be brought into focus ahead of deeper support along the supporting trend line running along late 2017/mid-2018 lows.