UK GDP confirms recession but business investment up

The first estimate of the economic growth data for the fourth quarter of 2023 shows the UK economy shrinking by 0.3% in those three months. Add that to the 0.1% contraction in the three months to September, and the mainstream media are overjoyed because they can now report that the UK is in recession. i.e. two questers of contraction. They love a bad news story. However, sterling hasn’t ‘collapsed’, as I saw it described in one report this morning. The pound is 1/4 of a cent down against the US dollar at $1.2550 and 1/5 of a cent lower against the euro at €1.690. We were at these same levels 9 days ago. The reason for sterling’s relative stability is that the markets were already expecting poor data on be GDP front and the other data we saw this morning showed an annual rise in business investment of 3.7% boosted by a quarterly rise of 1.5%, making last month’s contraction of 2.8% look like a blip on the chart. In a very busy morning of data for the UK, we also saw strong industrial production and manufacturing production data, the latter report delivering a 2.3% growth figure for the year to December. Throw in the fact that labour productivity was up 0.7%, well above the market expectations, and the whole data set doesn’t look quite so dire. So, whilst sterling is down on the week there are clearly sterling buyers out there and the pound is being reasonably well supported. The next challenge for the pound is tomorrow’s release of retail sales data for January. The forecasts are quite positive, so Sterling buyers may see today as their opportunity to bag a cheap quid or several.

Aussie unemployment at two-year high

With negligible growth in the number of people in work in Australia, the unemployment rate ticked up to a 2-year high of 4.1%. This will undoubtedly turn up the volume on those calls for the Reserve Bank of Australia to start cutting interest rates, loosening the bindings on the Aussie economy. Whether they will hear the call is an entirely different question. Despite this data, the UK GDP numbers allowed the GBP/AUD rate to slide a little. This pair starts the morning at AUD 1.9315, which is almost exactly where we started this week, out of the midweek spike we saw to AUD 1.9525. We don’t have any Australian data overnight tonight but we do have UK retail sales data in the morning. Expect further volatility in this pair.