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UK GDP returned to growth in January after entering a technical recession last year.
The UK economy returned to growth in January as GDP increased by 0.2%. The UK recorded a technical recession in the final quarter of 2023, so this morning’s figures point to that contraction being unusually short and shallow.
Economic output was boosted by the services sector, which grew by 0.2% over the course of the month. Human health and education also helped to drag the numbers into positive territory.
There was a bit of nip and tuck in currency markets yesterday, but not as much volatility as in the days before. The US dollar was the big mover, recording gains of around half a cent against both the pound and the euro.
The dollar strengthened after US Consumer Price Inflation (CPI) came in surprisingly high in February. Perhaps more crucially, core inflation, which strips out some of the more volatile items included in the headline figure, such as food and energy, also increased at a faster pace (3.8% month-on-month) than had been expected.
The Federal Reserve has shifted to a more cautionary tone over the last couple of months. This data seemed to vindicate their view that price pressures are still persistent, and that the final stretch of taming inflation might be more of a struggle than earlier stages.
If you’re a “glass half-full” kind of person, you might appreciate what the OBR’s David Miles had to say about the UK economy yesterday. Giving evidence to MPs, Miles observed that UK economic productivity had been so bad for the past 15 years that the only way is up. How’s that for a rallying cry?
To be fair to the much-maligned UK workforce, unemployment is running in and around record lows. While its true that productivity per worker lags behind many developed economies, the UK’s economy has also grown at a quicker rate than the likes of France, Germany and Japan since the pandemic.
India is preparing for a national election before mid-June. While Narendra Modi and the BJP party are expected to win comfortably, news that food inflation increased by 5.09% in February may cause a few jitters from within the circle of power.
The Japanese yen’s rally hit something of a bump yesterday. The yen had been more than 2% up against the US dollar since the middle of last week, boosted by interest rate expectations, but lost around 0.5% as US inflation data rolled in.
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GBP: Earnings finally cool
It’s been a long period of rapidly rising wages, but it finally seems the tide is turning. Average weekly earnings including bonuses slowed to 5.8% in the three months to January, the slowest growth since July 2022. Coupled with this morning’s GDP release, the Bank of England will surely see progress on the journey to quash inflation.
GBP/USD: the past year
EUR: German energy prices fall
As one of the countries most exposed to Russian energy supplies, Germany is certainly ready to put the struggles of the last few years behind it. Well, there was good news in data released yesterday, which showed energy prices had fallen despite the expiration of the government’s “brake” on price increases.
GBP/EUR: the past year
USD: Pesky price pressures
The Federal Reserve have shifted their tone in recent weeks, warning markets that inflation was proving more of a pest than expected. Now, with core inflation sticky and CPI stalling above 3%, it seems markets are finally waking up to this reality.
EUR/USD: the past year
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