UK GDP, Pound Sterling, FTSE 100 Analysis
Economic Deterioration Confirmed in Q4
The UK economy has experienced a notable downshift since the start of 2023 which culminated in a technical recession for the second half of the year. Worse-than-expected GDP data for the fourth quarter revealed a 0.3% contraction (QoQ) to mark two successive quarters of negative GDP – the definition of a technical recession.
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With the minor Q3 contraction of 0.1% remaining unchanged, hopes of avoiding a recession all but evaporated. GDP data is subject to change ahead of the next quarter’s results as more data for Q4 trickles in, however, the sharper contraction in final quarter means it is highly unlikely that the recession call will be invalidated.
Despite the gloomy news, early estimates of 2023 GDP as a while point to a 0.1% rise compared to 2022. This seemingly positive news is put into perspective when you consider the yearly growth represents the weakest annual change in UK GDP since the financial crisis in 2009. The histogram below reveals the growth struggles in the UK despite budgetary measures put in place by the Chancellor of the Exchequer in the Autumn statement. Attention now shifts to the pre-election Spring Statement which is due to be held on the 6th of March where there is much anticipation around potential tax cuts to help soften the blow.
At 13:00 GMT markets will get insight into how January GDP is tracking when the National Institute for Economic and Social Development releases its monthly tracker.
UK GDP Growth (QoQ)
Source: Tradingeconomics, prepared by Richard Snow
Sterling Eases Further While the FTSE 100 Opens Higher
The immediate market reaction saw the pound moving marginally lower against the dollar and the yen. Japan also confirmed a recession as Q4 GDP missed estimates, taking the market by surprise. It has been a week full of UK data but ultimately the pound appears to be worse off because if it. A robust labour market and stubborn inflation have tempered rate cut expectations for the Bank of England this year but that has failed to provide support for sterling. GBP/USD and GBP/JPY both appear to be heading lower. The Bank is unlikely to cut interest rates in a hurry while it maintains concerns over services inflation and wage growth.
The FTSE opened strongly this morning, buoyed by the weaker pound. The local index has not enjoyed the same good fortune as US indices but looks to achieve a two-day advance ahead of the weekend.
Multi-Asset Performance after the GDP Data (GBP/USD, GBP/JPY, FTSE 100)
Source: TradingView, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
