The latest data from the Office for National Statistics (ONS) revealed that the UK economy rebounded by 0.2% in January (in line with market forecasts), bolstered by robust growth in retail, wholesale and construction. This followed a month-over-month fall of 0.1% in December 2023 and two consecutive quarters of contraction in the second half of last year, action sparking what is referred to as a technical recession. However, it is important to note that although monthly growth was realised in January, in the three months leading to January, UK GDP fell by 0.1%.

According to the release, the expansion was driven by growth in services output (0.2% in January), which was the largest contributor. Also of note, production output fell by 0.2% in January, while output in construction grew by 1.1% in the same period.

Source: Statista

Short-Lived Recession?

Data sheds light on the possibility that the UK economy may have nudged out of recessionary territory, which will be welcomed by those at 10 Downing Street. Some desks anticipate Q1 2024 UK economic activity to expand by 0.1%, aligned with the Bank of England’s (BoE) latest forecast.

Regarding market pricing, there was a minor increase in bets for the BoE to begin cutting the Base Rate in June, following the release. Overall, though, behind the Fed and the European Central Bank (ECB), markets still favour August’s policy meeting for the first 25bp cut amid persistent inflationary pressures.

Sterling Unmoved

Given the BoE is more focused on wages data at the moment, GDP growth (unless a notable miss or beat was observed across the board) was unlikely to generate much in the way of actionable trading opportunities. And in light of data coming in pretty much as expected, the market, despite a slight downtick in GBP/USD, largely shrugged off the release. In fact, as of writing, the major currency pair traded north of pre-announcement levels, but is seen fading the underside of the $1.28 handle after rebounding from H1 support coming in at $1.2760.

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