UK GDP Contracts by 0.3% Affirming the Grim BoE Economic Outlook

It was a busy start to the day for the GBP/USD. After a particularly quiet first half of the week, finalized UK GDP numbers for Q3 drew interest ahead of the holidays.

In Q3, the UK economy contracted by 0.3% versus a prelim 0.2% contraction. The economy grew by a modest 0.2% in Q2.

According to the Office for National Statistics,

• The services sector grew by 0.1% while the production sector tumbled by 2.5%, with all 13 manufacturing sub-sectors falling.
• According to estimates, the real GDP is 0.8% below Q4 2019, the quarter before the COVID-19 pandemic.
• Households tightened their purse strings in Q3, with the household saving ratio surging from 6.7% (Q2) to 9.0% in Q3.
• Disposable income fell for a fourth consecutive quarter.
• Year-over-year, the economy increased by a revised 1.6% in Q3 2022 versus a prelim 2.4%. In Q2, the economy grew by 4.4%.

The finalized numbers affirm the concerns of the Bank of England. The MPC recently warned that the UK faces its lengthiest recession on record. Significantly, the grim economic outlook will also limit the Bank of England’s maneuverability to return inflation to target.

Monetary policy divergence remains in favor of the dollar, which has left the GBP/USD floundering in the wake of the hawkish Fed rate hike and FOMC economic projections.

Following today’s stats, no MPC members are due to speak. However, investors will need to monitor any chatter with the media.

GBP/USD Price Action

Ahead of the stats, the GBP/USD slipped to a pre-stat low of $1.20743 before rising to a high of $1.21349.

However, in response to the stats, the GBP/USD fell from $1.21195 to a post-stat low of $1.21120. Today’s UK GDP numbers were bearish.

At the time of writing, the Pound was up 0.23% to $1.21108, with the market focus shifting to the US economic calendar.

The US Session

It is a busy day ahead, with the weekly jobless claims and finalized Q3 GDP numbers for the markets to consider. With the Fed planning on keeping its foot on the gas, a sharp increase in jobless claims could deliver monetary policy uncertainty.

However, Q3 GDP numbers in line with prelim figures or better-than-expected numbers would likely weigh on the GBP/USD.

The markets will also need to consider FOMC member chatter, which could have more impact than the stats.