Pound Sterling Drops Against Euro and Dollar Amid Second Month of Economic Contraction

December 13, 2024 - Written by Frank Davies

STORY LINK Pound Sterling Drops Against Euro and Dollar Amid Second Month of Economic Contraction

The Pound Sterling fell against the Euro and US Dollar following the latest UK GDP data release on Friday.

The Pound to Dollar (GBP/USD) exchange rate dipped to 10-day lows at 1.2620 while the Pound to Euro (GBP/EUR) exchange rate retreated to 1.2065, well below 33-month highs of 1.2150 recorded earlier in the week.

According to the ONS, UK GDP declined 0.1% for the second successive month in October compared with consensus forecasts of 0.1% growth.

Industrial production and construction output declined 0.6% and 0.4% respectively while the services sector failed to grow.

On a 3-month basis, GDP secured a slight 0.1% expansion compared with the previous 3-month period.

GDP increased 1.3% over the year compared with market expectations of 1.6%.

ONS director of economic statistics Liz McKeown commented; “Oil and gas extraction, pubs and restaurants and retail all had weak months, partially offset by growth in telecoms, logistics, and legal firms.”

Deutsche Bank chief UK economist Sanjay Raja noted; “Budget uncertainty has hit demand and sentiment. Survey data paint a more pessimistic picture for the fourth quarter than the OBR’s and Bank of England’s growth models suggest.”

He added: “To be sure, poor weather won’t help lift activity in Q4-24 either. Storm Bert and Storm Darragh will have likely disrupted output meaningfully in November and early December with both storms bringing strong winds, floods, snow, and precipitation that will hit activity.”

Yael Selfin, chief economist at KPMG UK, added; “The fourth quarter could see a weaker pace of growth, as businesses come to terms with the higher tax burden announced at the Budget as well as rising geopolitical uncertainties.”

ING expects some improvement next year; “UK GDP fell again in October, though that probably exaggerates the extent of the recent slowdown in economic momentum. Growth is likely to outpace much of Western Europe next year following the recent budget, though the downside risks are more obvious than the upside.”

Elsewhere, the GfK consumer confidence index edged higher to -17 for December from -18 the previous month.

Neil Bellamy, consumer insights director at GfK, commented; “We will need to see robust improvements in these perceptions of the economy before we can start talking about sustained improvements in the consumer mood. In a nutshell, it’s the continuing uncharitable view on the UK’s general economic situation that’s suppressing consumer confidence.”

Looking at the policy implications, ING added; “unless growth materially disappoints, and that’s not our base case, the Bank of England is going to remain laser-focused on inflation. With services inflation stuck around 5%, next week’s meeting is likely to be a bit of a non-event, with policymakers opting to keep rates on hold again until February.”

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