GBP remains close to worst levels

Last week’s UK economic data was clumped around Tuesday and Thursday, leaving three days for the gloomy economic and Brexit outlooks to weigh unimpeded upon the pound.

Tuesday’s government borrowing figures were positive on the face of it, showing the government’s first budget surplus for a July since 2002. Receipts for self-assessed income tax climbed to £8 billion from £7.2 billion in July 2016. This was the highest level of self-assessed tax receipts since records began in 1999.

However, markets were concerned by the news that borrowing for the financial year so far has now reached £22.8 billion, which is nearly £2 billion higher than the first four months in the previous fiscal period.

The pound therefore remained largely soft, despite the news of the surplus. Even data from the Confederation of British Industry (CBI) showing an unexpected rise in orders received by manufacturers during August failed to prop Sterling.

Thursday’s second quarter GDP estimate held steady on initial projections of 0.3% quarter-on-quarter economic growth. Some in the market had feared a downwards revision to June’s retail sales data would have dragged economic growth lower than initially predicted, so growth remaining at 0.3% was something of relief.

However, it was hard for the markets to get excited about such a sluggish rate of expansion. On top of this, exports grew by a below-forecast 0.7% during the quarter, against expectations of 1% growth, business investment stagnated on the quarter and on the year, and the CBI retail sales index dropped from 22 to -10, against forecasts of holding in positive territory at 14.

It’s not a hugely busy data calendar for the UK this week, but there are some notable releases. Thursday sees the release of the next GfK consumer confidence survey results. Sentiment is expected to weaken further, so the pound could take a battering. Michael Saunders, one of the more optimistic members of the Monetary Policy Committee (MPC) is due to give a speech on Thursday, so Sterling could find some support if he continues to suggest that he will push for a rate hike.

On Friday, the next cycle of business surveys from research company Markit begins with the publication of the manufacturing PMI for August. The index is expected to worsen, but only fractionally, so the pound may not be too perturbed.