GBP has shown unexpected strength in recent months with their latest release GDP coming in above analyst expectations, leading many experts to believe that the likelihood of a recession has decreased. In this article, we take a look at the leading factors driving the UK's current economic bounce-back.
One key factor in this economic improvement is the robust performance of the country's services sector, which accounts for a sizeable portion of the UK's GDP. The services sector has been buoyed by increased consumer spending and a rebound in international travel over the last year.
It is also worth noting that The FTSE 100 Stock Index, a market index that represents the performance of the top 100 companies listed on the London Stock Exchange, is currently at a near all-time high. This is a positive indicator of the overall health and strength of the UK economy and has resulted in increased investor confidence in UK securities.
The dollar has lost considerable strength recently due to the release of the recent Consumer Price Index (CPI) numbers, which have missed expectations on several occasions indicating that inflation could be slowing. This has led to the pound gaining ground against the dollar as investors and traders adjust their positions in response to the changing economic conditions. Today's UK GDP figures showed a surprise growth of 0.1% in the economy with a deviation of 0.66 from the initial consensus of a -0.2% shrink. This figure was paired with the quarterly Index of service (Nov) figures coming out at -0.1%, beating the-0.4% consensus, on top of the figures for monthly Industrial Production (Nov) coming in at -0.2% against a consensus of -0.3%. The release of these figures alone have bolstered the outlook for the UK's economy with the FTSE 100 now trading above 7,800 GBP, leading many investors to doubt the likelihood of a recession.
The GBP/USD pair is currently approaching $124, a level which marks the high from last June. To the downside, support could be found around $118-$119. Currently the pair trades around $122 with investors watching for a break above the June high to see further upside in the pound.
Despite this positive news, it is important to note that the UK economy is still recovering from the impact of the pandemic and the Brexit transition. The unemployment rate remains high and many businesses are still struggling. While recent economic data suggests that there may be light at the end of the tunnel for the UK economy, investors will be proceeding with caution for the foreseeable. The economy may have surprised investors with its recent resilience and unforeseen growth, but a number of challenges still lie ahead for the United Kingdom.
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