Sterling has given up some ground over the past couple of days following the release of the latest UK growth and inflation figures.
UK GDP figures out this morning confirmed that the UK slipped into a technical recession at the end of last year, with GDP contracting by 0.3% in Q4 after falling by 0.1% in the previous quarter. Although a technical recession was predicted, the contraction in the last quarter was larger than expected (forecasts were for -0.1%), which shows the impact of tight financial conditions and still-elevated inflation continued to be felt across the economy.
Yesterday’s UK inflation numbers (CPI) also surprised on the downside and together these figures may help ease some of the Bank of England’s concerns over the persistence of price pressures. At the same time, however, Tuesday’s UK labour data came in better than expected and forward-looking data such as this suggests the economic downturn is not extending into this year, with activity seemingly picking up at the start of the year. Consequently, although Sterling has lost some ground over the past 48hrs, its losses have been relatively contained so far. Traders appear to believe that the BoE won't be in a rush to cut interest rates anytime soon, with June looking likely the earliest date for a first rate cut.
As a result, the GBP/USD is down about 1% from Tuesday’s high and trades close to a 9-day low. The GBP/EUR is down by around 0.7% from Tuesday’s high and also trades close to a 9-day low. Pound traders will keep an eye on tomorrow’s UK retail sales figures but, with investors’ attention seemingly more focused into forward-looking data, markets will be more interested in next Thursday’s UK PMI data releases.
