Sterling softer after UK GDP data

Sterling is a little softer this morning after the latest GDP data shows the UK economy was in recession over the second half of last year, dipping to around 85.5p to the euro and to just under $1.2550 against the dollar. The euro, meanwhile, is marginally off its post-US inflation data lows against the dollar, trading at around $1.0730.

UK government bond yields are lower this morning following the GDP data, having fallen yesterday as well on the back of weaker than expected inflation numbers, while yields elsewhere are nudging down again after closing slightly lower yesterday. In equity markets, stocks partially rebounded after Tuesday’s sell-off with the S&P 500 gaining 1% and European indices up around a half a percent.

The UK economy contracted for a second quarter in a row in the final quarter of last year, with GDP falling by 0.3% q-o-q following a decline of 0.1% in Q3. Consumer spending fell again in the quarter albeit the pace of decline slowed a lot, and exports were down for a fourth quarter in a row, though business investment recovered having fallen in Q3.  It should be noted, however, that recent survey data – including the PMIs – point to an improvement in economic activity at the start of 2024.

ECB President Lagarde says “wage pressures for 2024 hinge particularly on the outcome of ongoing or upcoming negotiation rounds that affect a large share of euro area employees”, and reiterates that, while the “current disinflationary process is expected to continue, the (ECB) needs to be confident that it will lead us sustainably to our 2% target.”

There’s a heavy enough schedule of economic data due today, all of it in the US, with retail sales, industrial production and jobless claims due for release, while the European Commission publishes updated Euro area economic forecasts.