The UK macro data released on Friday was a double whammy: first, October retail sales surprised to the downside (and previous months were also revised downwards), followed by similarly weak November PMIs. The outlook for fourth-quarter growth is not good, given that third-quarter growth was already quite weak, Commerzbank’s FX analyst Michael Pfister notes.

Growth to accelerate somewhat from next year

“It should be noted that retail sales and the PMIs are quite volatile and subject to further revisions, and the data's predictive power for growth has been rather weak in recent quarters. At the same time, however, the figures also highlight the problems that the UK still faces: the weak retail sales in October were probably at least partly due to consumers holding back on spending ahead of the new budget.”

“On the other hand, the PMIs probably indicate that companies are less optimistic about the future, precisely because the budget is mainly targeting companies for tax increases. Despite these figures, we still expect growth to accelerate somewhat from next year. This is supported by the fact that the government is significantly increasing its spending, while wages continue to rise faster than prices, giving consumers more money to spend in real terms.”