UK: Lowering prices to export the accumulated stocks

UK: Lowering prices to export the accumulated stocks

Q3 GDP data confirmed the downtrend in company prices in order to get rid of the precautionary stocks accumulated since the start of the year in preparation for a no-deal Brexit. Overall, GDP grew by +0.3% q/q, -0.1pp below our forecast. Exports in volume have rebounded strongly to +5.2% q/q as export prices fell by -4.4% q/q, the strongest decrease since the 2000s. As a consequence, stocks have continued to decrease (-0.9pp to real GDP growth). Overall, net exports have contributed a strong +1.2pp to Q3 growth as import expansion was not as spectacular as in Q1 (+0.8% q/q). As expected, households have also purchased goods in preparation for a no-deal Brexit (+0.4% q/q) while companies have put on hold their investment plans (0% q/q for business investment). Going forward, we expect two quarters of negative growth (-0.1% q/q) in Q4 2019 and Q1 2020 on the back of earlier frontloading activities due to preparations for a no-deal Brexit. While uncertainty has decreased (we now assign a 10% probability to a no-deal Brexit on 31 January vs. 40% in September) we expect another Article 50 extension, given the upcoming elections on 12 December and the winter holidays.