All of the major releases from the UK in the last fortnight were at least slightly surprising, with inflation and GDP unexpectedly declining slightly while claimant count change was much better than the consensus. Sentiment remains weak, though, with traders concerned about British public borrowing. This article summarises recent important news from the UK then looks briefly at the charts of GBPUSD and EURGBP.
Annual headline inflation in Britain moved down to 2.5% in December against the 2.6-2.7% expected:
Although it's too early to say with any certainty that inflation will stabilise below 3%, it looks like upward pressure has declined somewhat in recent months. The outlook for demand from consumers is generally mixed amid lacklustre confidence. Inflation for food, alcoholic drinks, restaurants and hotels all slowed last month. 2.5% annual headline inflation for December is in line with the Bank of England's forecasts.
Final British GDP for the third quarter was nil, revised slightly downward from the first estimate of 0.1%. Weaker growth after Q1 2024's relatively strong initial exit from the technical recession suggests that the Bank of England might have more scope for cutting rates this year compared to, say, the Fed. The majority of expectations points towards about 0.65% as the total of cuts by the BoE this year, but that's very likely to change in the next few months as new data become available.
21 January's job report from the UK was overall much stronger than expected. Although unemployment in November edged up to 4.4%, claimant count change was highly positive:
The latest figures from the Office for National Statistics indicated only 700 new claimants in December compared to expectations of more than 10,000. November's figure was also revised sharply downwards to negative 25,100; the initial figure had been positive 300. That's the biggest single month's drop in claimants since May 2023.
The larger than expected budget deficit in Britain last month is probably the main reason traders didn't react more strongly to the good job report. Public borrowing in December at around £17.8 billion was about £10 billion more than the same period in 2023.
Donald Trump's inauguration and subsequent rapid-fire executive orders brought some positivity to forex markets since the new president didn't immediately order extra tariffs. Although the expected tariffs are likely to hit the EU, Canada and Mexico a lot harder than the UK, traders might remain reluctant to commit and wary of sudden movements in the next few weeks.