Will the Pound drop now that the UK is in recession?

Much of the talk regarding the Pound’s value and the performance of the UK economy this month had been geared towards last week’s GDP release for Q4 of 2023.

It’s now official that the UK is a shallow recession, and there was a drop in the Pound’s value when the official figures were released as the drop in economic output in Q4 was higher than expected.

The markets had expected to see a -0.1% drop quarter-on-quarter, but the official reading came out at -0.3 confirming the recession and also a slightly deeper recession than expected.

Since last Thursday’s release the Pound has managed to claw back the losses and has begun the week in quite a strong fashion, with GBP/EUR back above 1.1700 and GBP/USD still trading comfortably above 1.26.

Personally, I think the Pound hasn’t been heavily impacted by the worse than expected GDP readings and official recession being confirmed as a rebound in the economy is expected.

The markets will be more focused on the more recent economic updates now as they could impact when the Bank of England will begin cutting interest rates.

Inflation data last week was lower than expected, putting pressure on the BoE to begin cutting rates sooner than later. Retails Sales last week also came out much high than expected which is perhaps why the Pound has recovered last Thursday’s losses so soon.

This week offer another insight into the UK economy’s heath as PMI readings will be released on Thursday. They will cover Services and Manufacturing data with Services being the key for the UK economy. Another reading above 50 is expected which demonstrates growth in the UK’s most important sector. The January reading was 54.3 and 54.4 is expected this time which will be positive for the UK economy and could give the Pound a boost if the reading is above this.

If you would like to discuss the Pound’s recent and potential movement moving forward, please feel free to get in touch with me directly on joseph.wright@lumonpay.com and I will be happy to discuss your plans. We offer very competitive quotes and market insights.