UK Economy Expanded in November but Contracted by 0.2% over Three Months

Highlights

• The UK economy grew by 0.3% in November, beating forecasts.
• The services sector was the main contributor to growth midway through Q4 2023.
• Later in the session, the investor focus will shift to US producer prices and the Fed.

UK GDP

On Friday, the UK economy was in the spotlight. November GDP, industrial, and manufacturing production garnered investor interest.

The UK economy expanded by 0.3% in November after contracting by 0.3% in October. However, the 3-month GDP average showed a 0.2% contraction after stalling in the three months to October. Economists forecast the UK economy to expand by 0.2% in November and to contract by 0.1% in the three months to November.

According to the Office for National Statistics,

• Service sector output increased by 0.4% after falling 0.1% in October. The service sector was the main contributor to growth in November.
• Significantly, output from customer-facing services rose by 0.6%.
• However, there was no service sector growth in the three months to November.
• Production output increased by 0.3%, driven by manufacturing output. Industrial production declined by 0.8% in October.
• Manufacturing production rose by 0.4% after falling by 1.1% in October.
• However, output across the construction sector declined by 0.2%. Adverse weather reportedly affected planned work.

Bank of England Monetary Policy Implications

The larger-than-expected 3-monthly average contraction could allow the Bank of England to begin discussions on rate cuts. However, improving UK service sector conditions could be a consideration. Nonetheless, a lack of service sector growth over three months leaves uncertainty about the UK economic outlook.

GBP/USD Reaction to the UK GDP Estimate

Before the UK numbers, the GBP/USD fell to a low of $1.27493 before rising to a high of $1.27844.

However, in response to the UK GDP numbers, the GBP/USD rose to a high of $1.27767 before falling to a low of $1.27630.

On Friday, the GBP/USD was up 0.03% to $1.27642.

Up Next: US Producer Prices and Fed Commentary

On Friday, US producer prices for December will garner investor interest. After the hotter-than-expected US CPI Report, a marked pickup in producer prices could test bets on a March Fed rate cut. Producer prices are a leading indicator of consumer price inflation.

Economists forecast producer and core producer prices to increase by 0.1% and 0.2%, respectively. Producer and core producer prices stalled in November.

With inflation in the spotlight, FOMC member commentary also needs consideration. FOMC member Neel Kashkari is on the calendar to speak on Friday. Reaction to the inflation figures will warrant investor attention.