UK GDP could wake sluggish pound, but the outlook is far from rosy

Forex

The UK’s first-quarter GDP print could be a good one, but will everything be as it appears?

Analysts at EY ITEM Club expect an uptick in growth during the months in what should have been the final quarter before the UK began its transition out of the European Union. A frantic few months, several baffling votes, and two extensions later, and the government now has until October to figure it out.

It’s longer than we need, Theresa May boldly claimed, seemingly having forgotten how the last few months have unfolded. Since then the political front has fallen eerily quiet, but the same cannot be said for businesses.

Brexit preparations to inflate growth figures?

If the UK economy did indeed pick up pace at the start of 2019, it could be because companies were busy stockpiling ahead of – what seemed at the time – an almost unavoidable no-deal Brexit.

PMIs for the quarter have made unpleasant reading; March saw the key services index collapse into contraction territory with a 48.9 reading. Construction, meanwhile, recorded the first consecutive output decline since August 2016.

Manufacturing, on the other hand, hit a 13-month high of 55.1 during March. The key phrase from survey-conductors Markit, though, was “The impact of Brexit preparations remained a prominent feature at manufacturers in March. Efforts to build safety stocks led to survey-record increases in inventories of both purchases and finished products”.

It’s even possible that consumers have been stockpiling, and that this will increase growth as well.

How will sluggish pound respond to growth data?

Brexit and the associated political drama have worked to effectively anaesthetise sterling from economic data. Even key data like services PMIs have been met with a muted response of late; until the outcome of the Brexit negotiations is known, the economic calendar for the UK is somewhat moot.

Growth data could be different.