Following Thursday’s European start, the GBP/USD exchange rate saw significant increases that eventually reached a top just over the 1.2190 mark as equity markets saw net gains.
The exchange rate between the pound and the euro (GBP/EUR) reached new weekly highs over 1.1300, and despite a fall to 1.1270, it registered its fifth straight day of gains before settling just below 1.1300 on Friday.
Even if the UK economy legally escaped a recession by the end of 2022, the entire environment still felt like one and the Pound was not supported.
UK Squeezes By Technical Recession
Consumer-facing services had a 1.2% fall, with activity in the health and education sectors declining.
After a third quarter fall of 0.2% that was later rectified, activity in the fourth quarter of 2022 was unchanged.
Economic statistics director for the ONS, Darren Morgan, noted that strikes in the public sector hampered activity and resulted in “fewer operations and GP visits, as well as noticeably lower school attendance, as more parents pulled their children out of the classroom, especially in the lead-up to Christmas.”
For the sixth straight quarter, industrial production decreased as well, highlighting underlying malaise.
Despite this, he continued, “We still believe the economy will enter a recession this year since the drags from high inflation and high interest rates are quite considerable (and we estimate that just one third of the drag from higher rates has been felt so far.)”
A Difficult Start to 2023 Likely
“The persistent strain on household spending power due to rising inflation will weigh on consumer spending, while the combination of pressure on profitability and the uncertain future makes for a hard background for company investment,” said Martin Beck, chief economist for the EY ITEM Club.
The UK averted a recession last year, albeit by the thinnest of margins, according to Debapratim De, senior economist at Deloitte.
“UK growth has been stuck for some time now, recession or no recession,” he continued.
“Our personal judgment is that we’ll have a 0.3-0.4% decline in GDP in the first quarter, and possibly a modest decline in the second,” it continued.
Focus on BoE Implications
Commerzbank claims that the BoE has no choice but to wait for the release of further data in order to get a more accurate opinion.
Be cautious before releasing important inflation data.
Sterling has increased, and the trend of greater highs in the EUR/GBP pair being followed by sizable declines has continued, according to Socgen. Before the [Euro] advance returns, perhaps we will drop to 0.88 or possibly 0.8750 (1.1450–1.1500 for GBP/EUR).