GBP/USD Hits Day High on Better-Than-Expected Q3 UK GDP Numbers

After a quiet week on the UK economic calendar, the UK GDP report drew plenty of attention this morning.

A lack of stats ahead of today’s numbers left the GBP/USD primed for a big move after Thursday’s US inflation-fueled 3.17% rally to wrap up the day at $1.17147.

According to the ONS, the UK economy contracted by 0.2% in Q3 reversing the growth of 0.2% in Q2. Economists forecast a contraction of 0.5%.

• Services, production, and construction industries saw slower output in the quarter.
• Output in the production sector fell by 1.5% in Q3, a fifth consecutive quarterly fall, with services output ending the quarter flat. In the previous quarter, services output rose by 0.2%.
• Real household expenditure fell by 0.5%.
• In the monthly estimate, the economy contracted by 0.6%, with the UK bank holiday for the State Funeral of Her Majesty Queen Elizabeth II affecting the monthly figure.

When considering the impact of inflation on the UK economy, the implied GDP deflator rose by 1.2% in Q3 2022. Higher price pressure for household consumption (2.3%) pushed the deflator higher. Compared with the same quarter a year ago, the implied GDP deflator increased by 5.8%, driven by a 9.2% rise in the price of household consumption.

Year-over-year, the economy grew by 2.4% versus 4.4% in Q2. Economists forecast year-over-year growth of 2.1%.

Other positives included better-than-expected industrial and manufacturing production and trade data. Notably, manufacturing production was flat in September after falling by 1.1% in August. Economists forecast a 0.4% decline.

The GBP/USD responded favorably to the stats, rising from $1.17087 to a post-stat and a day high of $1.17346 before easing back.

While the stats were better than expected, the BoE’s grim outlook and the UK Government’s Autumn budget remain considerations over the near term.

At the time of writing, the GBP/USD was up 0.10% to $1.17276.

The Bank of England Staged the Set Ahead of Today’s GDP Report

Last week, the Bank of England delivered a grim outlook of the economy while lifting rates by 75 basis points. The Bank of England forecasts the UK economy to contract in five out of six quarters if the Bank stands pat on interest rates. Significantly, the Bank also warned that the UK economy is facing its lengthiest recession on record.

However, following the BoE rate hike and forecasts, BoE Chief Economist Huw Pill warned of more rate hikes to tackle inflation, stating that,

“Our target is ultimately not on the real economy. Our target necessarily, because we’re running monetary policy, is to contain inflation.”

The Bank of England and the Bank’s Chief Economist set the stage for today’s numbers.

Following today’s stats, investors will turn their attention to Bank of England Monetary Policy Committee member (MPC) commentary to gauge what lies ahead.

MPC members Jonathan Haskel and Silvana Tenreyro are due to speak after today’s report. Comments on the GDP report and monetary policy would also move the dial.