U.K.’s economic growth slowdown appears increasingly modest, says Lloyds Bank

The incoming economic data of the U.K., since the Bank of England’s multi-faceted policy easing in August, has been assessed thoroughly to which they bear out the view of an uncertainty driven deceleration in the aftermath of the EU referendum, noted Lloyds Bank. The economic activity trends continue to seem resilient.

The third quarter economic growth, which is the first full post-referendum quarter, accelerated 0.5 percent sequentially, only a modestly slowdown from the second quarter and more rapid that the average quarterly rate of quarterly over 2015. Especially, business investment recorded its second straight quarter of growth. In the meantime, survey data at the onset of the fourth quarter continued to stay strong, with the composite PMI in October the strongest since January 2016.

There has been a drop in uncertainty metrics since their peak in July. If it is sustained, the reduced uncertainty might indicate towards a gentler slowdown in growth than what appeared likely after July’s surge, said Lloyds Bank. For the near-term outlook, it is important to see how uncertainty evolves in the months ahead and how solid the mapping proves with official activity data.

Official indications of the U.K. government’s preferred timetable to leave the EU still indicates towards the risk of economic discontinuity and therefore of certain prospective resurgence in uncertainty. If uncertainty returns along with tighter fiscal conditions, there is a risk that the U.K. economic activity growth might decelerate sharply.

In all, there might still be certain drag on investment as the prospect of the U.K. leaving the EU nears. However, the significance attached to this channel appears to be overstated, noted Lloyds Bank. Softness in sterling will push up import costs and drag on real purchasing power. This is expected to result in weaker outturns for economic activity throughout 2017 and 2018. This effect is expected to dominate the boost to net exports from the 11 percent depreciation of the British pound, added Lloyds Bank.

At 05:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bearish at -109.68, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -110.982. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex