In November, the UK economy was unexpectedly strong. It has been a positive surprise considering that economic activity in September was up 0.3% month-on-month, compared to analysts’ expectations of a measly 0.1% increase. The BOE’s fourth-quarter projection had been for a 0.3% quarter-on-quarter increase, which is proved correct by the flow of the most recent data. This positive performance provides the BOE with additional room to consider easing its monetary policy in light of ongoing economic challenges.
Underneath the surface of this widespread growth, some sectors were showing significant signs of strain, especially the construction industry. The construction sector saw a downturn of 1.3% m/m in November, after a -1.2% m/m print in October. This downturn shines a light on the deteriorating state of the construction industry, which is still grappling with considerable headwinds.
Even more than usual, growth in the overall economy was lifted up by positive performance in the services sector. In November, production increased 0.3% following a 0.3% increase in October. This rebound is a welcome sign of stabilization in what are typically the most consumer and business-facing service industries, an essential part of the UK economy.
Overall production output showed robust performance in November, increasing by 1.1% month-on-month. That’s amazing growth on top of a strong 1.3% increase in the month of October. The story in advanced manufacturing was equally remarkable over this stretch. That suggests that industrial activity is in demand and accelerating, despite a more-disruptive economic undercurrent.
All in all, real GDP increased by 0.3% m/m in November, after a small dip of -0.1% in October. These figures indicate that the UK economy is tracking closely with the BOE’s expectations, which may influence future policy decisions.
“Leading indicators point to soggy UK economic activity with real GDP growth tracking the Bank of England’s (BOE) Q4 projection of 0.3% q/q. As such, the BOE has room to ease policy further, which remains a drag for GBP. The UK swaps curve fully price-in a total of 50bps of BOE rate cuts to 3.25% over the next twelve months.” – Fxstreet
The market appears to be responding to these positive developments. In fact, it is pricing in 4 BOE rate cuts over the next twelve months. Analysts are forecasting the swaps curve to shift down by an overall 50 basis point decrease. This will move the fed funds down to 3.25%, primarily motivated by worries about lackluster economic activity.