UK to Avoid Recession Ahead of Brexit Deal Decision

As the agreement with the EU over the Northern Ireland Protocol winds its way through political hurdles, the UK is set to report a rather downbeat January GDP figure.

NI Deal Hangs on DUP

After voicing some scepticism but also some optimism on the deal struck between UK PM Rishi Sunak and EU's Ursula von der Leyen, the Democratic Unionist Party is holding a panel to discuss its stance on the agreement. The leader of DUP, Sir Jeffrey Donaldson, said that the panel would review the agreement for a week and provide a definitive answer before the end of March. 

The DUP's review is seen as a crucial first step to getting the support of "rebel" Tories, mostly affiliated with the European Research Group (ERG), who might not support the deal. Reportedly UK's PM is looking to reduce the number of Tory votes, despite expecting to get sufficient support from Labour to pass the agreement. One of the leaders of the Euro-skeptic group, Jacob Rees-Mogg, had positive comments on the deal but cautioned that support from backbench tories likely depends on the view of the deal taken by the DUP. 10 Downing Street is hoping to get the deal done before April 10, which is the anniversary of the signature of the Good Friday Agreement. The PM also hoped that US President, Joe Biden, would appear to smooth Anglo-American relations ruffled over the Protocol affair. 

GDP to Tumble MoM, but Average to 0%

Pending the resolution of the Northern Ireland issue, traders will get an avalanche of macro data on Friday, with the monthly GDP for January likely taking the spotlight. January's GDP is expected to show a -0.5% decline compared to +0.1% in December. But when averaging the rolling three months, the expectation is for 0% growth, compared to 0% prior (which coincided with the fourth quarter, allowing the UK to avoid a recession technically).

Among other market-relevant data to be released simultaneously is the January Trade Deficit, which is expected to worsen to -£19.3B compared to -£17.8B in December. Additionally, monthly industrial production is expected to increase by 0.3% in January, compared to -0.1% in December.

Cable Due to Imminent Triangle Breakout

Cable has been consolidating since the end of last year, but the price action is characterised by a downward-sloping trendline, suggesting a descending triangle. If the top trendline rejects a potential upward spiral, the chances of a breakdown will increase, with weakness under $1.1918 giving way to $1.1860. Conversely, a move past $1.2145 could lead prices to $1.2276, where the pattern may reveal its bullish implications.

Source: Spreadex

Key Takeaways

The DUP is reviewing the new NI deal with the EU, which could be passed before April 10 if there is no drawback from DUP. UK's GDP figures due on Friday are expected to contract MoM but average out to 0% on a rolling basis, allowing the UK to avoid recession as it heads towards a critical decision.