British growth slows again somewhat – Commerzbank

The UK economy grew at a slightly slower pace in the third quarter than economists polled by Bloomberg had expected. The pound came under some pressure as a result, causing EUR/GBP to rise. However, we would be cautious about reading too much into Friday's figures, Commerzbank’s FX analyst Michael Pfister notes.

The risks are on the upside

“Firstly, quarter-on-quarter growth of 0.14% was very close to the rounding threshold. At the same time, there were some hopeful signs: private consumption grew strongly and thus contributed the lion's share to growth. This was probably due to the continued rise in real wages, which gave consumers more room to maneuver.”

“At the same time, the government continued to invest and gross fixed capital formation increased. Basically, a rather volatile sub-component pushed growth down significantly. This component rose sharply in the second quarter, thus having a strong weight in the aggregation. In the third quarter, by contrast, a now relatively small increase pushed growth down accordingly.”

“We therefore believe that the third quarter figure somewhat understates long-term growth potential, just as we believe that the growth figures for the first half of the year were somewhat overstated. The UK economy is likely to return to somewhat stronger growth in the coming quarters. We therefore remain cautiously optimistic on sterling, especially as the Bank of England's focus is more on inflation and stronger consumption suggests that the risks are on the upside.”