The pound is rallying on the back of latest UK GDP data

The pound moved a notch higher after the UK’s GDP data came in slightly above expectations but the currency still remains fragile against the dollar and the euro. The release of US jobless data later Friday will provide the catalyst for the next move.

The UK’s GDP unexpectedly expanded by 0.3% in January (against expectations of a 0.1% rise), mostly due to several one-off factors. In January the Post Office resumed normal services after strikes in December, there were more pupils in classrooms compared with December when parents removed them from school in higher numbers than usual, and as the Premier League football returned after the World Cup ended in late December, the number of related events increased.

Private healthcare activity was also higher in January, very likely because of NHS strikes during the month. Consequently, services sector activity grew by 0.5% in January (after falling by 0.8% in December), boosting overall GDP for the month.

• 2025 Outlook: What next for developed economies and currencies?
• Gold price forecast for 2025: Can it go to $3000?
• WisdomTree launches new global ETF on London Stock Exchange

But it would be too soon to read any real recovery into these numbers, particularly as sectors other than services continued to struggle. Production output fell by 0.3% in January compared with 0.3% growth in December while the construction sector shrunk by a full 1.7% after being flat in December. During the three months between November to January, the economy was flat compared with the same period 12 months ago.

Looking ahead, analysts expect the UK economy to, at best, move sideways for the rest of the year and into 2024 before starting to show any serious signs of renewed organic growth.

A welcome boost for the pound

Still, for the pound, the numbers provided a welcome boost and sterling traded higher against the euro at a daily high of 1.1270. Similarly against the dollar, the pound stood at 1.1943.

Today’s GDP data is unlikely to have much of an impact on the Bank of England’s monetary policy as the central bank already indicated that it plans to stop increasing rates from March. Instead, both cable and euro/sterling are more likely to be moved later Friday by the US labour data which is due to be released at 13.30 GMT.

February job growth in the US is expected to have slowed down compared with the fast pace of expansion in January but is still likely to show that new jobs rose by 225,000 last month. If so, the US unemployment rate would be at the lowest level in decades at 3.4%.

The increase in new jobs will be more than what the Federal Reserve would have expected to see following its latest rate hikes and would indicate that the consumer price pressure is unlikely to have eased. Earlier this week Federal Reserve Chairman Jerome Powell said in a Congressional testimony that the central bank will have a close look at the jobs report as well as inflation and retail sales figures due next week when considering whether to step up its rate rise programme.

The Fed is very likely to continue increasing rates in 50 basis point increments, similar to the ECB.

To access the latest Insights from WisdomTree’s thought leaders such as blog posts and other content including videos, podcasts, research and education, go to Blog | WisdomTree Europe

Related GBP Currency Pairs – ETFs

Listen: WisdomTree analyst Nitesh Shah on commodities and inflation