What's going on?
Investors didn’t think the UK economy would grow in November, but – in a twist no one saw coming – they opened a data release on Monday to find the economy had actually shrunk.
What does this mean?
With Brexit uncertainty having taken its toll over the past few years, the UK economy has had a tricky time of it. So investors were already pessimistic about what this new data would reveal. But it turns out they weren’t pessimistic enough: the economy shrank by 0.3% compared to the month before – the most since April 2019. And compared to a year earlier, the economy only grew 0.6% – its worst performance since 2012.
Why should I care?
For markets: Snip snip.
Now the UK election is over and Brexit is finally underway, Britain’s economy should be able to breathe a little. But there’s still pressure on the Bank of England to stimulate the economy by cutting interest rates. One member of the central bank’s committee has already suggested he’s going to vote for just that when they convene later this month. The pound took a tumble on the news: it won’t be so useful if lower rates encourage investors to take their money out of pound-denominated UK bonds.
Zooming out: In the fast lane.
The autos industry is part of the UK economy that’s struggled for a while, and it likely continued to in November. But a positive update from China’s auto sector may have helped the Chinese yuan’s rise on Monday: the government hinted it wouldn’t reduce electric car subsidies this July, boosting shares of newly local carmaker Tesla and its Chinese rival BYD. It just goes to show how the autos industry is starting to shift, which is perhaps one reason why Nissan is reportedly considering a split from Renault. The Japanese carmaker thinks the French manufacturer is dragging on its growth – though if it goes it alone, it’ll have to cover heftier research and development costs.