GBP/USD shrugs as UK economy shows slight growth

The British pound is drifting on Wednesday. In the European session, GBP/USD is trading at 1.2784, down 0.06%.

UK GDP expands 0.2% in January

It wasn’t a spectacular rebound but the UK economy showed some slight improvement, with GDP rising 0.2% m/m in January. This modest gain was in line with market expectations and followed a 0.1% decline in December. The main drivers behind the gain were retail trade and construction.

Over the past three months, GDP painted a gloomier picture. On an annualized basis, GDP declined by 0.3% decline, while GDP in the three months to January was down 0.1%.

The UK economy experienced a shallow recession in the second half of 2023, as the third and fourth quarters showed negative growth. The small gain in January shows that economy remains stagnant and could still be in a recession, but could point to the economy slowly finding its feet.

The Bank of England has projected that GDP for the first quarter will edge higher by 0.1% and the markets have priced in rate cut later in the year – August is the most likely date for a first rate cut but June is also a possibility. Inflation has dropped to 4% and consumers are feeling less of a squeeze on their wallets. Still, inflation remains double the 2% target and the battle against inflation is far from over.

Like other major central banks, the BoE is wary about lowering rates until it is convinced that inflation will not jump higher after it cuts rates. The BoE meets on March 21^st and is widely expected to hold rates at 5.25% for a fifth straight time.

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GBP/USD Technical

• GBP/USD tested support earlier at 1.2788. Below, there is support at 1.2751
• There is resistance at 1.2829 and 1.2866

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