UK Economy Expands by 0.2% in January on Service Sector Output Rebound

UK Economy Expands in January

On Wednesday, the UK economy was in focus. January GDP numbers, service sector output, industrial, and manufacturing production garnered investor interest.

The economy expanded by 0.2% month-on-month in January after contracting by 0.1% in December. Economists forecast the economy to grow by 0.2%.

According to the Office for National Statistics,

• Service sector output grew by 0.2% month-on-month. The services sector was the biggest contributor to economic growth. Service sector output fell by 0.1% in December. However, service sector output stalled in the three months to January.
• Consumer-facing services output grew by 0.6% month-on-month in January after falling 0.8% in December.
• Industrial production output declined by 0.2% month-on-month and by 0.2% in the three months to January.
• Construction output rose by 1.1% in January but was down 0.9% in the three months to January.
• The UK economy contracted by 0.3% year-on-year in January.

Bank of England Monetary Policy Implications

Reports of UK mortgage arrears reaching 7-year highs and weaker labor market conditions pressured the Bank of England to revisit interest rate cuts. Recent labor market data revealed a higher unemployment rate and softer wage growth.

However, the pickup in economic activity at the start of the year could allow the Bank of England to leave rates higher for longer.

The pickup in consumer-facing services output may draw the attention of BoE Monetary Policy Committee members. The services sector remained the driving force behind inflation in December. The CPIH All Services Index rose by 6.0% year-on-year in December.

GBP/USD Reaction to the UK Q4 GDP Report

Before the UK data, the GBP/USD fell to a low of $1.27819 before rising to a high of $1.27989.

In reaction to the UK GDP Report, the GBP/USD fell to a low of $1.27895 before rising to a high of $1.27965.

The GBP/USD was up 0.01% to $1.27945 on Wednesday.

Up Next

On Wednesday, UK NIESR Monthly GDP tracker figures for February also need consideration. Economists forecast economic growth of 0.1% after contracting by 0.1% in January.

Better-than-expected numbers could also allow the Bank of England to delay interest rate cuts and sustainably bring inflation to target.