UK Trade Deficit Widens On Brexit Stockpiling

Alongside the weaker than anticipated GDP print released yesterday, GBP was weighed down by data which showed a widening of the UK trade deficit in December.

The total trade balance for the UK over the final month of 2018 fell to -12100 million, worse than the -11946 million the market expected.

Brexit Stockpiling To Blame

A key driver of the increase was reportedly the rise in stockpiling undertaken by UK firms ahead of the UK’s scheduled EU departure date of March 29^th.

In the face of such uncertainty, businesses have ramped up stockpiling operations which drove a significant increase in imports of cars, machinery, and chemicals.

The breakdown of the data shows car imports rose by £1.2 billion over the measured time period. Meanwhile, machinery imports increased by £300 million, and imports of other machinery and chemical items rose by £700 million.

Fears Of A Sharp Currency Fall Build

The sharp rise in imports, which outstripped the levels of exports over the same period, reflects the fear businesses have of the risk of a sharp depreciation in GBP. Also, it reflects business concerns regarding the necessary access to suppliers in the event of a no deal Brexit.

As Brexit negotiations continue in the ever-nearing face of the March 29^th deadline, the UK economy is likely to continue to be hit by uncertainty.

Until then, the market will wait and see if the UK PM will be able to deliver a deal and avoid a hard-Brexit successfully.

Technical Perspective

GBPUSD is now retesting the broken top of the falling wedge pattern. If price makes it back below the resistance trend line, support at 1.2693 will be brought into focus ahead of deeper support along the supporting trend line running along late 2017/mid-2018 lows.