Pound Crashes After UK Reports Worst GDP Since 2012, Rate Hike Odds Tumble

The British pound tumbled, 10Y gilt yields slumped and odds of a May BOE rate hike vaporized after the UK reported the weakest GDP print since 2012.

This morning, the UK's Office for National Statistics reported that Q1 GDP rose just 0.1% Q/Q, badly missing expectations of a 0.3% increase, and the lowest quarterly increase since Q4 2012. On an anual basis, the increase was just 1.2%, also missing expectations of a 1.4% rise.


While analysts had had expected a modest slow down in growth to drop from the 0.4% growth in Q4 2017, the slowdown was far bigger than expected as snow hit retail sales and disrupted building work, and raises further questions over whether the Bank of England will raise interest rates in May.

According to the FT, a sharp fall in construction output was responsible for most of the slowdown. "The sector contracted by 3.3 per cent compared to the previous quarter. Analysts had expected the industry to bear the brunt of the poor weather."

Following the news, UK money markets slashed their bets in half for a rate hike in May to 27% from 56% on Thursday. They now see the first rate increase this year in December, from November earlier.

Immediately following the data, which put the likelihood of a widely priced-in May rate hike by the BOE in doubt, the pound was hammered on the news, tumbling by 150 pips or 0.9% to 1.3791. Cable was already under pressure as U.K. Prime Minister Theresa May’s struggle to keep control of a Cabinet divided over Brexit doesn’t go unnoticed amid broad dollar strength

10Y Gilt yields similarly tumbled on the news, dropping 5bps to 1.45%.

So all this was due to a heavy snowstorm, which nobody could possibly see... take place over a month ago?

Apparently yes: chancellor Philip Hammond blamed the "Beast from the East" snowstorms as a key cause for the pullback.  “Today’s data reflects some impact from the exceptional weather that we experienced last month, but our economy is strong and we have made significant progress,” he said in a statement. He was simply taking cues from Mario Draghi who yesterday blamed the European weakness on the timing of Easter and, of course, weather.

Refuting this ridiculous explanation, the ONS said that the impact of snow on output in the first quarter was estimated to be “relatively small” and “ the soft [growth] outcome reflects pockets of weakness more broadly across the economy."

Rob Kent-Smith of the Office for National Statistics said:

Our initial estimate shows the UK economy growing at its slowest pace in more than five years, with weaker manufacturing growth, subdued consumer-facing industries and construction output falling significantly.

While the snow had some impact on the economy, particularly in construction and some areas of retail, its overall effect was limited with the bad weather actually boosting energy supply and online sales.

According to the market, the figures will prevent BOE head Mark Carney from raising rates in May. The governor of the central bank Mark Carney has already suggested that weak inflation data and a smaller increase in wage growth than expected has reduced the pressure on the BoE to increase interest rates.

As for the drop in the pound, it has been exacerbated by the relentless resurgence in the dollar in the past two weeks, leaving the UK currency at its weakest point in close to two months.

Comments

Stu Elsample Fri, 04/27/2018 - 06:37 Permalink

What do those stinky Muslims who have overtaken London use for currency?? I will guess dried goat turds with "In Allah We Trust" stamped on them.

Regardless of what they use, it will be the future currency of Englandistan

BritBob Fri, 04/27/2018 - 06:44 Permalink

Had 2-months of disruptive weather that has distorted figures. 

The bad weather looks set to send a chill over Britain's economy, with warnings of a short-term hit to growth.

The impact on sectors such as retailing and construction could halve the 0.4% GDP growth many economists had forecast for the first three months of 2018.

Retail expert Phil Dorrell said the big freeze could be a "disaster" for the high street as people staying home turned to more shopping online. (BBC 4 March 18)

DemandSider Fri, 04/27/2018 - 07:00 Permalink

It's the Anglo/American FIRE sector parasite curse. Ever widening inequality between working, earned income earners, and wealthy, unearned income parasites; decades of trade deficits; virtually all consumer middle class manufacturing gone, replaced by lower paying service jobs;  runaway military spending and stupid, expensive foreign wars. Get ready, UK, the neoliberals will goose GDP the way neoliberals always do, by opening the immigration flood gates.

THE DORK OF CORK Fri, 04/27/2018 - 08:16 Permalink

GDP is merely total prices in the economy .

Its rise generally leads to a lower real standard of living.

It's

the only true standard of inflation.

What matters to  real people is net income per capita ( income - depreciation)

THE DORK OF CORK Fri, 04/27/2018 - 08:25 Permalink

Exports add to GDP....

So the export of real wealth increases GDP.....

Ha.

More tourists flocking to consume the communities goods ( or in the case of the UK , world goods )

To Hell In A H… Fri, 04/27/2018 - 11:22 Permalink

UK high streets are slowly dying. The rent-seekers who charge extortionate rents for retail space has caused half the damage. Don't let local authorities be landlords was the mantra. Sell it to the private sector as only the private sector knows best. Well the private sector have priced out entrepreneurs and young business-people, forcing them to trade online, which has helped speed up the demise of the high street.

So high has retail rents become, you regularly see shops divided into two/shared in half by shop keepers. It's not like the old days when landlords had to lower rates, because they had overheads and mortgage repayments to make. Many of these retail landlords own their properties outright and on principal, do not lower rates. TBH, the pound is just as much junk as the dollar and should never be worth as much as it is.