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Pound Sterling Gets Current Account, GDP and Business Investment Boost

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Friday's data comes after a series of surveys that all paint a mixed picture of the UK economy. Forecasters say growth should have picked up in the fourth-quarter.

The Pound rose during early trading in London Friday after the UK current account was shown narrowing in the third-quarter, while business investment numbers were revised higher and economic growth was steady.

Britain’s current account deficit narrowed to -£22.8 billion during the three months to the end of September, according to the Office for National Statistics, which is down from -£23.2 billion previously. Economists had hoped for a slightly larger fall to -£21.5 billion.

Current account data reflects the difference between payments going into and out of a country. The UK’s deficit was equivalent to 4.5% of GDP in the third quarter, down from the 5.1% of GDP seen previously.

The deficit narrowed due to increased earnings on foreign investments, which came despite UK companies spending an unusually high amount on the acquisition of foreign companies during the period.

Separately, on Friday, economic growth was confirmed at 0.4%. This is up from the 0.3% seen in the first two quarters of the year, but still below that achieved in prior years.

“The economy looks to have at maintained this pace in Q4. This should mean that GDP growth for 2017 as a whole should come in at about 1.8%,” says Paul Hollingsworth, a UK economist at Capital Economics.

Business investment grew faster than was previously thought during the quarter, rising by 0.5% as opposed to the 0.2% growth revealed by the earlier figures released in November.

“Looking ahead, the consensus expects growth to slow to 1.4% next year. However, with the squeeze on households’ real earnings set to abate, and a chance that Brexit uncertainty actually recedes, rather than build further, as negotiations progress, we suspect that the economy will actually gain a little momentum next year,” Hollingsworth adds.

The Pound was quoted 0.09% higher at 1.3388 against the Dollar after the release Friday while the Pound-to-Euro rate was marked 0.09% higher at 1.1295.

Friday's data comes closely on the heels of a series of survey this week that, all told, paint a fairly mixed picture of the UK economy at present. It also comes at a pivotal time for UK politics.

December's Lloyds Business Barometer showed confidence among UK companies rising 4 points during recent weeks, to a five month high of 28%, on Friday.

Lloyds' survey polls 300 firms who have turnover in excess of £1 million and asks them to rate current business conditions relative to those prevailing three months ago.

The net balance of firms expecting stronger business prospects in the months ahead also rose four points, to 48%, while hiring intentions have remained robust.

December’s IHS Markit polls of purchasing managers across the manufacturing, construction and services sectors should give more insight into the likely pace of growth in the final quarter of the year.

“Looking ahead to the New Year, the Markit/CIPS manufacturing survey is likely to reveal that the manufacturing PMI (2nd Jan.) softened slightly in December, while the services PMI (4th Jan.) probably edged higher,” says Finn McLaughlin, another economist at Capital Economics.

They will be released in the first week of January, some weeks ahead of the preliminary estimate of economic growth for the fourth quarter.

“This should leave the all-sector PMI (4th Jan.) fairly stable on the month, while the rise in the balance on a quarterly basis points to a slight uptick in GDP growth from 0.4% in Q3 to around 0.5% in Q4,” McLaughlin adds.

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