16 Jan 2025

The British pound has edged lower on Thursday. In the European session, GBP/USD is currently trading at 1.2205, down 0.22%

UK GDP posts weak gain of 0.1%

The UK economy has emerged from a period of negative growth for the first time in three months, albeit marginally. Following a contraction of 0.1% in both September and October, November recorded a slight increase of 0.1%, falling short of the market expectation of 0.2%. Over the three months leading up to November, GDP exhibited no growth.

While the modest increase in November is a positive development for the government, the overall economic outlook remains bleak. The recent budget, characterized by increased taxation and spending, will implement tax hikes starting in April, including an increase in employer National Insurance contributions. This is likely to adversely affect the business sector, prompting many companies to reduce their spending and investment, which could further hinder economic growth. With inflation remaining elevated, the combination of low growth and high inflation poses a significant risk of stagflation.

1. An additional concern for the government is Donald Trump, who has vowed to impose tariffs on American trading partners. The United Kingdom's economy is significantly dependent on its export sector, and a trade conflict with the United States could have catastrophic effects on the already vulnerable UK economy. Furthermore, Trump's protectionist trade policies may result in increased inflation, potentially undermining the progress achieved in controlling inflation. Recent reports indicating subdued UK inflation and GDP growth have heightened anticipations that the Bank of England will reduce interest rates during its upcoming meeting on February 6.

In the United States, the inflation data released for December presented a mixed scenario, with the headline Consumer Price Index (CPI) increasing for the third consecutive month, while the core CPI experienced a slight decline. Following the inflation report, expectations for a rate cut intensified, leading to a depreciation of the US dollar against several major currencies.

GBP/USD technical

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  GBP/USD previously encountered resistance at 1.2242. Further resistance is located at 1.2310. The subsequent support levels are 1.2176 and 1.2108.