UK economy contracts in September, pound shrugs

The British pound has stabilized on Friday after four straight losing sessions. In the European session, GBP is trading at 1.2666, up 0.02%. It has been a miserable week for the pound, which is down 1.9%. The pound fell as low as 1.2629 on Thursday, its lowest level since early July.

UK GDP declines 0.1%

The UK economy surprised on the downside with a contraction of 0.1% m/m in September, after a 0.2% gain in August and below the market estimate of 0.2%. This was the first decline in five months. Quarterly, the economy expanded by only 0.1% in the third quarter, its weakest pace in three quarters. This followed the 0.5% gain in Q2 and missed the market estimate of 0.2%. The services sector grew by just 0.1%.

The GDP data will be a major disappointment to the new Starmer government, which has promised to kick-start the UK economy. After solid growth in the first half of the year, the economy fell with a sharp thud, with weak consumer and business confidence dampening economic activity.

The Bank of England will be keeping a close eye on the GDP data, with its next meeting on Dec. 19, the last meeting of the year. The BoE shaved rates by a quarter-point earlier this month and weak GDP will support the case for a rate cut at the December meeting.

US retail sales expected to improve

The US closes the trading week with retail sales, which are expected to have improved in October. The market estimate is 1.9%, compared to 1.7% in September.  Consumer spending has been generally strong and consumer confidence should improve now that the uncertainty over the US election is over.

GBP/USD Technical

• GBP/USD tested resistance at 1.2674 earlier. The next resistance line is 1.2719
• 1.2578 and 1.2527 are the next support levels

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.