Brexit uncertainties weighing in on UK business investment

Fundamental Analysis

GBP

“Businesses will likely become more cautious over investment and employment as the economy shows increasing signs of slowing and uncertainties over the outlook are magnified by 'Brexit' negotiations coming to the forefront after the government triggers Article 50.”

- Howard Archer, IHS Markit

The British economy showed first signs of Brexit vote influence, as the overall growth slowed, seeing the annual GDP growth rate holding steady at 2%, behind expectations for a 2.2% increase. Nevertheless, according to the second GDP estimate released by the Office for National Statistics on Wednesday, the UK economy expanded 0.7% in the Q4, the strongest performance since the last quarter of 2015, compared with a 0.6% growth pace observed in the previous quarter. In the report, the ONS highlighted that economic growth was mainly boosted by upwardly revised manufacturing output, which expanded 1.2% from 0.7% registered previously. As to the expenditure side, net trade and household consumption supported the economy, while capital spending levels set negative impact on the overall economic performance in the United Kingdom. In the meantime, the weak Pound is expected to support exports in the foreseeable future, though risks brought by the Brexit are still in place.

CAD

"The decline in volume puts a dent into what was otherwise looking like a firm performance for December GDP."

- Nick Exarhos, CIBC

Having posted four straight monthly advances, sales in the Canadian retail sector slumped over the month of December, official data showed on Wednesday. Statistics Canada reported that retail sales nosedived 0.5% in the final month of 2016, with sales declining in 9 out of 11 subsectors. In volume terms, retail sales excluding price changes effects dropped 1.0% in the reported month. The core reading also came in worse than expected, slipping 0.3% last month compared with a 0.5% print expected by the market. The downmove was mainly caused by a plunge in new cars sales. On balance, automotive parts, accessories and tire dealers enjoyed an 18.0% bounce in sales in December, while gasoline stations saw a 6.6% increase, as prices for the fuel surged 3.1% on an unadjusted basis in the reported month. Another factor that managed to contribute to the fall in retail sales in December was slower holiday season shopping, with sales at apparel stores declining 3.7% and jewellery, luggage and leather goods stores posting a 12.4% drop in the observed period. Overall, store retailers in Canada generated $532B in sales in 2016, which is up 3.7% when compared to 2015.

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