Could the Pound fall in value if the UK officially slips into recession?

Despite being a quiet week for economic data releases, on Friday there is arguably one of the most important data releases for the UK economy so far in 2024 as GDP figures for November will be released.

In the third quarter of 2023 the UK officially contracted after revised figures showed a slight drop in economic output of -0.1% across the 3-month period of July, August and September.

For the UK to into an official recession there must be two quarters of consecutive declines. With the UK economy getting off to a weak start in October, I think the markets will be watching the November figure very closely.

The November expectation is for a climb of 0.2%. The October figure was -0.3% so if there was positive growth in November then it will all come down to the December release.

An officially slowing economy could weigh on the Pounds value. At the time of writing the Pound is trading within 1.75 cents of its annual high against the Euro, and although it’s not quite as strong vs the USD, it’s still trading much closer to the annual highs than the annual lows.

Outside of the growth figures I think the Pound will continue to be influenced by interest rate expectations. The Bank of England (BoE), the European Central Bank (ECB) and the Federal Reserve Bank in the US are all expected to begin cutting rates this year by between 100 – 125 basis points.

Any divergence from these expectations could impact the underlying currency values, as the cuts are often priced into the market before they’ve taken place. The Pound has benefited as the BoE is expected to keep rates higher for longer, so any changes from this expectation could have a knock-on effect for GBP exchange rates.

If you would like to discuss any of the topics in this report, or exchange rates regarding an upcoming transfer you plan on making, please feel free to contact me directly. You can email me on [email protected] with an outline of your plans.