It was a miss across the board for UK GDP growth, tipping the UK economy into technical recession territory. Two consecutive quarters of real GDP contracting is commonly viewed as a technical recession.

According to the preliminary estimate for Q4 (2023) growth, real GDP contracted more than expected at -0.3% as per the Office for National Statistics (ONS), versus -0.1% in Q3 and surpassing the estimate range low of -0.2%. From December to January, the ONS reported that growth contracted -0.1%, slightly milder than the -0.2% forecast (previous: 0.3%).

All major sectors took a hit in Q4 (services growth fell -0.2%, production fell -1.0% and the construction sector contracted -1.3%), which is ultimately a blow for Prime Minister Rishi Sunak, who pledged to grow the UK economy after entering 10 Downing Street (his plan may not be working after all). However, historically, this is one of the milder beginnings of a recession, and you may recall that the Bank of England (BoE) Andrew Bailey cautioned not to put much emphasis on a technical recession as it is anticipated to be ‘very’ shallow.

Production and Services Sub Sectors

The services sector saw contraction in 8 out of 14 sub-sectors in Q4, with wholesale and retail trade; repair of motor vehicles and motorcycles sub-sector being the largest, closely followed by the education sector.

The production sector also saw contraction in 10 of the 13 sub-sectors in Q4. As you can see, machinery and equipment, as well as rubber and plastic products, experienced a notable decline, followed by wood and paper products and other manufacturing and repair.

EUR/GBP Comfortable North of Trendline Resistance

Sterling witnessed an immediate spike lower on the back of the release, though it was not anything to write home about and would have been a difficult one to trade, considering daily price remains toying with the lower edge of its daily range at $1.2540.

GBP/USD Daily Chart:

The EUR/GBP cross, however, did see a potentially actionable move to the upside on the news, emphasising its position above H1 trendline resistance taken from the high of £0.8715. H1 resistances now call for attention nearby at £0.8558 and £0.8568.

EUR/GBP H1 Chart:

In terms of the BoE rate repricing, we did see a slight uptick in rate-cut bets; investors are now fully pricing in three 25bps rate cuts this year, or 75bps (prior to the release, forecasts were for just under three cuts).

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