GBP climbs after UK GDP shrinks less than forecast

[MongiIG]

Despite a milder than expected contraction, today’s GDP in the UK is the first leg of a recession that some say could last most of 2023. We look at GBP/USD in the context of the draw-back in USD and a drop in GBP/EUR.

 Jeremy Naylor | Writer, London | Publication date: Friday 11 November 2022

UK heading towards recession

The UK is on a path to recession. That's what the economic data out today suggests. It's a technical recession if you get two consecutive quarters of negative growth, and that's what economists are now forecasting.

The problem for the government is that the Bank of England (BoE) is predicting that rather than just a technical recession with two consecutive quarters in contraction, it may last all of next year and turn into one of the worst periods of contraction not just in living memory, but on record. That is the expectation that we've got.

UK Q3 GDP

You can see here, the third quarter (Q3) UK economy shrank by 0.2 percent quarter-on-quarter (QoQ). Expectations were a drop of 0.5%. So that's not actually as bad as had been expected.

The month-on-month (MoM) numbers came in worse than expected, year-on-year (YoY) is at 2.4%. Expectations were a 2.1% rise. If you look at the year on year figure, it's really not as bad as perhaps some had been expecting.

Taking a look at what's been happening in industrial production, falling by 3.1% in the figures out today in September year on year. The consensus has been for a 4.3% knock for the numbers for industrial production.

GBP/USD

Let's take a look at what's been happening with sterling. GBP/USD yesterday rising considerably up to this line of resistance at 11738.

And today, you can see we've made up the difference of a little bit of a pullback we saw yesterday. But we're still being kept down at that line there, which is not just the resistance we saw back on the 30th September, but also the point with which we saw it support it on the 14th of July.

So this is going to be a critical issue for where we go now from here.

GBP/EUR

So far as GBP/EUR is concerned, we've got the gains that we saw yesterday, little bit of a pullback in sterling in today's trade as a result of this GDP number out today, showing what is expected to be the beginning of the UK recession.