UK economy rebounds stronger than expected in October
It was a busy morning for the GBP/USD. October GDP, manufacturing and industrial production, and trade data drew interest this morning. The stats were GBP/USD bullish, with the UK economic outlook raising concerns over the likely effect of BoE rate hikes on the UK economy. Trade data was also GBP positive. The UK trade deficit narrowed from £15.66 billion to £14.48 billion, with the non-EU trade deficit narrowing from £8.55 billion to £4.82 billion.
Britain’s economy rebounded in October a little more strongly than expected from September when output was affected by a one-off public holiday to mark the funeral of Queen Elizabeth. Still, a recession remained on the cards, official data showed on Monday. In the three months to October, Britain’s economy shrank by 0.3%, a more minor fall than a median forecast for a 0.4% contraction in the Reuters poll but the biggest drop since early 2021 when the country was under tight coronavirus restrictions.
BoE expected to raise interest rates for the ninth meeting in a row
The Bank of England – which looks set to raise interest rates for the ninth meeting in a row on Thursday to contain the risks from an inflation rate above 11% – said last month that Britain’s economy looked set for a two-year recession if interest rates rose as much as investors had been pricing. It said that even without further rate hikes, the economy would shrink in five of the six quarters until the end of 2023.
“Tightening monetary policy too aggressively could risk worsening the financial outlook for firms and households, and extend the looming downturn,” said Suren Thiru, economics director at ICAEW, an accountancy trade body. The ONS said the economy in October stood 0.4% above its pre-pandemic size.