UK GDP Stats for January Beat Forecasts to Ease Fears of a Recession

It was a busy start to the UK session. Following a quiet Monday to Thursday, the UK GDP Report for January drew interest this morning.

The UK economy expanded by 0.3% in January versus the forecasted growth of 0.1%. In December, the economy contracted by 0.5%. On a 3-monthly basis, the UK economy stalled after a 0.3% contraction in the three months to December. Economists forecast a 0.1% contraction.

According to the Office for National Statistics,

• The services sector grew by 0.5% in January after falling by 0.8% in December. Education was the top contributor to service sector growth in January.
• However, production output declined by 0.3%, reversing the growth of 0.3% in December.
• From the production sector, manufacturing production slid by 0.4% after stalling in December. The 0.4% slide left industrial production down by 0.3% for the month.
• Construction output tumbled by 1.7%.

The UK GDP Report followed the latest British Chamber of Commerce (BCC) forecasts that painted a rosier picture of the UK economy. On Wednesday, the BCC released its 2023 UK economic forecasts. An upward revision to the 2023 economic forecast supported the GBP/USD. The BCC projected the UK economy to contract by 0.3% in 2023, up from 1.3%.

Significantly, the BCC also projected growth in the final two quarters of 2023, meaning the UK economy would avoid a recession.

The UK GDP Report supported the more optimistic BCC economic outlook and the gloomier first half of 2023, with the production sector struggling.

With economic data on the heavier side, investors should also consider Bank of England Monetary Policy Committee Member speeches. However, no Monetary Policy Committee Members are on the calendar to speak, leaving investors to monitor chatter with the media.

GBP/USD Responds to the UK GDP Report

Ahead of today’s UK GDP Report, the GBP/USD rose to an early high of $1.19335 before falling to a low of $1.19080.

However, in response to the UK GDP Report, the GBP/USD rallied from $1.19296 to a session high of $1.19518 before easing back.

This morning, the GBP/USD was up 0.16% to $1.19446.

Next Up

Looking ahead to the US session, it is a big day on the US economic calendar. The heavily anticipated US Jobs Report will be the key driver. Another jump in nonfarm payrolls would likely cement a 50-basis point interest rate hike in March and raise bets of larger increments post-March.

Following Fed Chair Powell’s hawkish testimony and the mid-week labor market numbers, investors should also monitor FOMC member commentary. Hawkish chatter and another spike in hiring would deliver another GBP/USD tumble.