Mixed UK Data

As the UK this week progresses through yet another stage of reopening, the latest round of economic data painted a muddied picture of the economy. Both industrial and manufacturing production were seen rising last month, by more than market forecasts, though GDP and trade balance readings were both seen undershooting expectations. Along with concerns over the potential for a third UK wave of the virus, investor sentiment in the UK has deteriorated with the FTSE falling in response to the data.

Industrial & Manufacturing Production Improve

On a positive note, industrial production for the month was seen rebounding to 1% from the prior month’s -1.8% dirge and beating expectations of a 0.5% reading. Manufacturing production was even stronger, printing 1.3% on the month from the prior month’s -2.3% reading and again surpassing expectations for a 0.5% result. These readings are in line with the PMI sets we have seen over the last month with the pandemic continuing to fuel a rise in manufacturing demand.

Construction Gains

Construction output was another plus point for the UK today. At 1.6%, the sector was up firmly from the prior month’s 0% reading and well above the expected 0.5%. This again reflects a surge of demand ahead of the planned reopening scheduled for April, May and finally June when lockdown is projected to end.

GDP Misses Mark

However, overall GDP for the month was seen at 0.4%, undershooting expectations of a 0.5% reading, though marking a firm recovery from the -2.2% seen across the prior month. Despite the better data, the breakdown shows that all sectors remain well below the levels seen prior to the pandemic with the economy, overall, 7.8% below where it was in February last year.

UK Trade Deficit Grows

Finally, the UK trade balance was seen growing further into deficit over February at -£16.44 billion. This was far deeper than the -£10.40 billion forecast and marked a sharp deterioration from the prior month’s -£12.59 billion. While the data showed that exports to the EU recovered after the record fall seen in January as Brexit was activated, the UK’s trade with the rest of the world suffered sharply. Traders now await the NIESR GDP estimate for the UK later today which will be the next key data for GBP.

Technical View

EURGBP

The breakout above the bear channel from December highs has seen EURGBP running into resistance at the .8678 level. While this level holds, a return to downside is still a risk. However, if price can sustain a retest of .8591 as support, there is room for a continuation of the recovery with bulls looks for a move back up to .8862 as the main objective. To the downside, below .8591, bears will be looking at the current 2021 lows of .8505 with a target of .8387 thereafter.

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