- Quarterly GDP for the UK came in at -0.3% in Q4 vs. -0.1% estimate.
- UK GDP arrived at -0.1% MoM in December vs. -0.2% forecast.
- GBP/USD keeps losses near 1.2550 on the UK GDP data.
The UK economy shrank 0.3% QoQ in the three months to December, compared with a 0.1% contraction seen in the third quarter of 2023. The market consensus was for -0.1% in the reported period.
Annually, the UK GDP contracted 0.2% in Q4 vs. 0.1% expected and the third quarter’s 0.3% growth.
The UK GDP declined 0.1% MoM in December, as against a 0.3% increase reported in November, beating the forecast of -0.2%.
Meanwhile, the Index of services (December) arrived at -0.2% 3M/3M and -0.2% prior and 0.1% expected.
Other data from the UK showed that Industrial Production and Manufacturing Production increased by 0.6% and 0.8%, respectively, on a monthly basis in December.
Separately, Total Business Investment rose by 1.5% on a quarterly basis in the final quarter of 2023.
Commenting on the UK GDP report, the country’s Finance Minister Jeremy Hunt said, “low growth is not a surprise.”
Additional quotes from Jeremy Hunt
There are signs British economy is turning a corner.
Still considers taking a more prudent monetary policy stance.
Although times are still tough for many families, we must stick to plan.
Market reaction to the UK GDP data
UK GDP figures failed to have any significant impact on the Pound Sterling market. At the time of press, GBP/USD is trading 0.07% lower on the day at 1.2555.
GBP/USD: 15-minutes chart
Pound Sterling price today
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies today. Pound Sterling was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.00% | 0.07% | 0.03% | 0.10% | -0.32% | 0.09% | -0.12% | |
| EUR | 0.00% | 0.06% | 0.02% | 0.09% | -0.33% | 0.09% | -0.12% | |
| GBP | -0.07% | -0.08% | -0.06% | 0.01% | -0.40% | 0.00% | -0.20% | |
| CAD | -0.04% | -0.02% | 0.04% | 0.06% | -0.35% | 0.05% | -0.14% | |
| AUD | -0.08% | -0.10% | -0.01% | -0.07% | -0.43% | -0.01% | -0.21% | |
| JPY | 0.29% | 0.32% | 0.35% | 0.32% | 0.38% | 0.38% | 0.18% | |
| NZD | -0.10% | -0.10% | -0.02% | -0.07% | -0.01% | -0.41% | -0.22% | |
| CHF | 0.12% | 0.12% | 0.19% | 0.15% | 0.22% | -0.20% | 0.21% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
This section below was published on Wednesday at 20:00 GMT as a preview of the UK GDP data.
- The UK GDP is foreseen posting a marginal contraction in Q4.
- The Bank of England expects Gross Domestic Product to gradually regain its pace in the next few quarters.
- Pound Sterling risks extra losses while below the 200-day SMA.
The UK’s Office for National Statistics (ONS) will release the advanced prints of the Q4 Gross Domestic Product (GDP) on Thursday.
At the Bank of England’s (BoE) latest gathering, the Monetary Policy Committee (MPC) anticipates a slow but steady uptick in GDP growth over the upcoming quarters.
If GDP prints meet markets’ consensus, the UK economy would have entered into a “technical recession” following the 0.1% contraction recorded in the previous quarter.
In addition, BoE’s officials suggested that approximately two-thirds of the effect of heightened interest rates on GDP levels have already materialized.
According to investors’ projections, the BoE is expected to be one of the latest central banks to start reducing its policy rates. On this, while traders see the Federal Reserve (Fed) and the European Central Bank (ECB) cutting rates around the summer, the “Old Lady” is seen kicking off its easing cycle later in the year, with the September meeting being a likely candidate.
Projections for the UK GDP
The Office for National Statistics (ONS) reported that the UK economy contracted 0.1% QoQ in the previous quarter, compared with the 0.2% gain posted in the April-June period of the previous year. In the three months to December, the economy is expected to have also contracted 0.1%.
In its latest meeting, the BoE downgraded its forecast for economic growth and now expects GDP to come in flat in Q1 2024.
At present, the UK’s Consumer Price Index (CPI) inflation continues to rank among the highest within prominent global economies. As indicated by the most recent ONS report, in January, the headline CPI experienced a year-on-year increase of 4.0%, holding steady from the December reading. Meanwhile, the core CPI remained sticky and rose 5.1% year-on-year.
When will the UK release Q4 Gross Domestic Product, and how could it affect GBP/USD?
The UK will release the Q4 Gross Domestic Product (GDP) flash estimate on Thursday, February 15, at 7:00 GMT. The economy is expected to have shrunk 0.1% in the three months to December. On a monthly basis, the GDP is foreseen to contract by 0.2% in December, declining from 0.3% expansion in November.
In January, inflation in the UK turned out to be lower than anticipated, with inflationary pressures showing less of an increase than both markets and the BoE had expected. The CPI figures prompted a reassessment of expectations regarding the central bank’s intentions to start trimming its policy rate and market participants now see the likelihood of 75 bps rate cuts this year.
Pablo Piovano, US Session Manager and Senior Analyst at FXStreet, says: “Breaching the 2024 low of 1.2518, recorded on February 5, exposes GBP/USD to further losses to, initially, the December 2023 bottom of 1.2500 seen on December 13. The breakdown of this region could prompt a potential test of the weekly low of 1.2187 printed on November 10, 2023, to re-emerge on the horizon. On the other hand, the weekly top at 1.2683 seen on February 13 should offer initial resistance and is considered the latest defence for a probable climb to the 2024 peak at 1.2785 clocked on January 12.”
Piovano adds: “A convincing breach of the key 200-day SMA, today at 1.2562, should open the door to the continuation of the downward bias, at least in the near-term horizon.”
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
Source: https://www.fxstreet.com/news/uk-gross-domestic-product-preview-uk-could-enter-into-a-technical-recession-202402142000