GDP Falls Again

The British Pound is trading lower across the early European session on Thursday. The selling comes in response to the attest growth data out of the UK with preliminary Q4 estimates reflecting a -0.3% dip in GDP over Q4 2023. On the back of the unrevised -0.1% reading over the prior month, if confirmed in the final result, this data will mark a technical recession in the UK.

Deeper Than Forecast

At -0.3%, the decline was also deeper than the -0.1% the market was looking for. Looking at the breakdown of the data, the UK suffered a broad-based decline in output with all key sectors recording negative contribution. In total for 2023, GDP is now seen at just 0.1%.

Easing Expectations Growing

The data certainly strengthens the conviction of those projecting near-term rate cuts from the BOE. Earlier in the week, unchanged inflation readings of 4% (headline) and 5.1% (core) were welcomed by traders, taken as a signal that the prior month’s uptick hadn’t grown further, keeping near-term rate-cut expectations alive. Set against this fall in activity, the case for a loosening of policy looks more encouraging, with GBP under pressure as a result.

Bearish GBP Risks

Looking ahead, GBP looks likely to remain under pressure while this narrative holds with the market currently pricing in a BOE rate cut by August. Speaking yesterday, BOE governor Bailey warned that services inflation and pay growth remain too high and reaffirmed the need to hold rates steady for now. In light of today’s data however, traders will be keen to see if this view shifts in the coming month or two.

Technical Views

GBPUSD

The market remains below the 1.2612 level for now and with momentum studies bearish, the focus is on a further move lower and a test of the 1.2437 level next. To the topside, the bear trend line from last year’s highs remains key resistance to note.