The pound sunk to its lowest level this year against the dollar after the UK economy grew at a slower pace than expected in the third quarter.
The UK currency fell below the 1.34 support level for the first time since December 2020, when fears of a no-deal Brexit spooked investors.
Data released by the Office for National Statistics (ONS) on Thursday showed the UK economy grew 1.3% in the third quarter, falling short of economists’ forecasts of 1.5%. It also represented a striking slowdown from the second quarter, when gross domestic product (GDP) rose 5.5%.
Goods and labour shortages were the biggest speedbump for growth amid a sharp rebound in demand.
However, the ONS chief economist, Grant Fitzner, said: “Growth picked up in September and the UK economy is now only slightly below pre-pandemic levels.”
The ONS figures corroborated this: in September alone, GDP increased by 0.6%, following a rise of 0.2% in August and a fall of 0.2% in July. UK economic growth is now just 0.6% below the level reported before the global health crisis began.
House price inflation increased in Britain in October, fuelled by a shortage of sellers that suggested further price rises are on the horizon, a closely watched survey showed on Thursday.
The Royal Institution of Chartered Surveyors (RICS) said 70% of its members reported an increase in house prices last month – the first rise in the house price balance since May – up from a revised 69% in September and exceeding economists’ expectations of 65%.
RICS Chief Economist Simon Rubinsohn said: “The inventory on agents’ books appears to have slipped back towards historic lows and this seems to be underpinning both the current price trend and expectations for the next year,”
Dollar continues to profit from inflation data
A US bank holiday on Thursday meant the dollar still had wind in its sails from inflation data the previous day that showed a surge in US consumer prices to a three-decade high – reviving bets on the Federal Reserve raising interest rates in 2022.
Investors expectations that the Fed will raise the cost of borrowing in the US have shifted from 2023 into the middle of next year, assuming inflation remains elevated.
The UK’s economic calendar is bare today. It’s not much busier across the Atlantic, with just one notable data set scheduled for publication: the Michigan Consumer Sentiment Index for November – a survey of personal consumer confidence in economic activity.
Investors will monitor a speech by John C. Williams today – the president and chief executive officer of the Federal Reserve Bank of New York – for further clues about the timing of monetary policy tightening.