Recovery in Doubt As UK Growth Seen Well Below Estimates In May

<h2>UK GDP Very Weak in May</h2>
<p>The latest economic data released on Monday showed that UK GDP bounced back in May, following a 20.3% contraction in April. However, at just 1.8% growth on the month, the rebound was well below the 5.5% growth forecast. While the monthly reading was disappointing, growth in the three months to May contracted by 19.1%, marking the largest three month contraction on record, surpassing expectatiosn for a 17.4% contraction. The data adds further weight to the growing concern over the pace of the recovery in the UK. Initial hopes for a V-shaped recovery have fallen flat in the face of such a subdued figure for May. It is worth noting that large parts of the economy remained under lockdown over the month and so the June data will likely be a better reflection of the post-lockdown pickup. Nevertheless, the data comes as stark disappointment having printed so low beneath the consensus forecast.</p>
<p><img class="aligncenter size-full wp-image-47039" src="http://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-14-at-11.09.33.png" alt="" width="1364" height="982" srcset="https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-14-at-11.09.33.png 1364w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-14-at-11.09.33-300×216.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-14-at-11.09.33-1024×737.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-14-at-11.09.33-768×553.png 768w" sizes="(max-width: 1364px) 100vw, 1364px" /></p>
<p><a href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/may2020" target="_blank" rel="noopener noreferrer"><em><strong>Source: ONS</strong></em></a></p>
<h2>Industrial Production Misses the Mark</h2>
<p>The latest industrial production data for the revealed a similar story. While activity rebounded firmly from the prior month’s 20.2% contraction, at 6% on the month, production was still below estimates of 6.2% and again raises concerns over how long the UK recovery will take.</p>
<h2>Manufacturing Beats Estimates</h2>
<p>There were some bright spots in yesterday’s data, however. UK manufacturing production rose from -24.4% in April to 8.4% in May, beating estimates of a 7.5% reading. While the rebound is still a long way off filling the whole created in April, the reading is at least encouraging of a better pickup in momentum in the manufacturing sector.</p>
<h2><strong>OBR Releases Bearish Forecast</strong></h2>
<p>In a statement released today, the UK Office for Budget Responsibility made a fairly grim assessment of the UK economy, saying: “The UK is on track to record the largest decline in annual GDP for 300 years, with output falling by more than 10 per cent in 2020 in all three scenarios. This delivers an unprecedented peacetime rise in borrowing this year to between 13pc and 21pc of GDP, lifting debt above 100pct of GDP in all but the upside scenario. As the economy recovers, the budget deficit falls back. But public debt remains elevated, continuing to rise in the central and downside scenarios.”</p>
<p>In terms of its expectations for the recovery, the OBR was equally bearish, noting that a V-shaped recovery was only likely in the most optimistic of its three model-scenarios. On this matter, the OBR said: “Our upside scenario assumes a short-lived rise in unemployment, that the business investment lost during lockdown is recovered afterwards, and that business failures are limited. Consequently, it assumes scarring is negligible and output follows the path assumed in our March forecast beyond the near term.”</p>
<h2>Technical Views</h2>
<p><strong>GBPJPY (Bullish above 133.51)</strong></p>
<p>From a technical viewpoint. GBPJPY reversed from the 61.8% retracement of the decline from 2020 highs but found support at a test of the rising channel bottom. While price holds within the channel, and with the 50DMA supporting, the near-term bias remain bullish. However, a break below here will create room for a deeper correction down towards the 130 level swing low.</p>
<p><img class="aligncenter wp-image-47095 size-full" title="Recovery in Doubt As UK Growth Seen Well Below Estimates In May" src="http://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-15-at-08.11.06.png" alt="Recovery in Doubt As UK Growth Seen Well Below Estimates In May" width="2462" height="1584" srcset="https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-15-at-08.11.06.png 2462w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-15-at-08.11.06-300×193.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-15-at-08.11.06-1024×659.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-15-at-08.11.06-768×494.png 768w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-15-at-08.11.06-1536×988.png 1536w, https://blog.tickmill.com/wp-content/uploads/2020/07/Screenshot-2020-07-15-at-08.11.06-2048×1318.png 2048w" sizes="(max-width: 2462px) 100vw, 2462px" /></p>
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