The British Pound is on track for a positive weekly performance against both the Euro and the Dollar, driven by encouraging news of the UK economy’s recovery in November.
According to data from the Office for National Statistics (ONS), the UK economy exhibited a month-on-month growth of 0.3% in November, rebounding from the previous month’s -0.3% contraction and surpassing consensus estimates of 0.2%.
While the monthly figures provided a boost, there were concerns as well. Year-on-year growth for November stood at 0.2%, recovering from a revised -0.1% in October. On a rolling three-month basis, the economy contracted by 0.2%, slightly worse than the expected 0.1%.
Specifically, manufacturing production demonstrated resilience, bouncing back to 0.4% month-on-month in November from the previous -1.2%, outperforming predictions of 0.3%. Industrial production met expectations at 0.3% month-on-month, and the services index aligned with projections at 0.2%.
In response to the released data, the Pound to Euro exchange rate stabilized at 1.1640, securing a weekly gain of 0.17%. Meanwhile, the Pound to Dollar exchange rate experienced a minor dip initially but maintained a weekly advance of 0.40% at 1.2767 as of the latest update.
Despite the positive figures for November, the broader economic outlook suggests a stagnating UK economy, necessitating a December rebound to avert confirmation of a technical recession.
Richard Carter, Head of Fixed Interest Research at Quilter Cheviot, notes that the November uplift is just enough to bring the UK economy back to flat growth over the two months. However, the pressure remains high on December figures, with the risk of entering a technical recession if there is even a slight downturn. Q3 GDP had already been revised down to a 0.1% fall at the end of the previous year.
PMI figures for December indicate a robust improvement in output, providing hope that the UK can avoid a technical recession. The short-term surveys in foreign exchange markets will continue to be influential, and the upcoming inflation numbers in the following week will be crucial.
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, emphasizes that although the underlying trend appears flat, a genuine recovery is anticipated this year. Real disposable income for households is expected to rise by approximately 2.0% year-on-year in 2024, supported by a faster decline in inflation compared to wage growth and a diminishing drag from mortgage refinancing.
Additionally, tax and benefit changes in the upcoming fiscal year are projected to bolster real household disposable income by 0.6 percentage points. With households’ saving rate already exceeding its pre-COVID norm, Tombs anticipates that most of this income upturn will contribute to increased household spending.