GBP: Economic Resilience Amidst GDP Upsurge and BoE Hawkish Stance Facing Tests

GBP

November GDP surprised to the upside last week, calming concerns over the possibility of a technical recession in Q4. The economy expanded by 0.3% month-on-month, following a contraction of the same magnitude in October. If the latest PMI data is anything to go by, another modest expansion in activity may be on the way in December, which would likely avoid the confirmation of a technical recession once the quarterly data is released in mid-February. The reaction in sterling to the data was subdued, however.

This week's data will test the Bank of England's recent hawkishness. In addition to the key December CPI inflation report, we will get November wage and December employment figures. While both wage and inflation numbers are expected to show a downward trend, they are both higher than in the Eurozone or the US. Core inflation is still hovering around 5%, and wages are growing at a near 7% rate, and we will have to see substantial reductions in both before the MPC is comfortable with the start of the cutting cycle.

Enrique Díaz-Álvarez

Analyst at Ebury – a leading global fintech company specialized in international payments, collections, and foreign exchange services for SMEs and midcaps. Ebury offers foreign exchange activity in over 130 currencies as well as cash management strategies, trade finance, and FX risk management. Authorised and regulated as an electronic money institution. Regulary ranked among the top forecasters in Bloomberg's FX forecast accuracy rankings. Ebury analysts also provide financial market reports in Polish, available on FXMAG.PL.