GBP

The pound fell after disappointing GDP data released on Friday. UK GDP declined by 0.5% in December which was more than the 0.3% forecast the market hoped for. The Office for National Statistics stated that the overall economy grew by 0% in the final quarter of the year, meaning the UK has avoided a technical recession. A recession requires two consecutive quarters of negative growth, and the UK economy shrank by 0.2% in the third quarter.

The GDP data was widely anticipated and therefore could have been priced in to the market. The data illustrates the difficulty the economy is facing, which we expect to contract in 2023. Expectations that continue to harm investor sentiment towards Sterling.

December’s contraction of 0.5% can be largely blamed on strikes, high energy prices and inflation according to analysts. The Bank of England last week revised higher its growth projections for the economy, although it still foresees a lengthy and shallow recession ahead.

Attention now turns to Wednesday’s CPI data release which will give more clues to investors as to what the BoE will do next in terms of interest rate hikes.