In a surprising turn of events, the UK economy shrank by 0.3% in October, causing the value of the British pound to decrease. Economists had predicted a steady or slight growth of 0.1% for the month.
This decline in the economy reflects the growing pressures on households and businesses because of the rising cost of living. Almost every sector of the economy experienced a decline, with the service sector, including IT, legal firms, and film production, taking the biggest hit.
Manufacturing and construction were also affected due to unfavourable weather conditions.
This unexpected contraction in the economy may prompt the Bank of England to consider lowering interest rates sooner than expected.
High interest rates have financially strained consumers, and the Bank of England understands that people have limited funds to spend on non-essential items. As winter approaches, households are expected to face even more pressure as costs for fuel and food continue to rise.
Although the UK has not yet beaten inflation rates, there is speculation about whether the Bank of England will lower interest rates based on this recent economic decline.
Investors now turn their attention to Tuesday’s figures, where the focus will be on the pace of average earnings growth. It is expected to have remained high at 6.2%, excluding bonuses, in the three months to the end of January, unchanged from December.
Money market pricing this morning showed that traders think the first BoE rate cut will most likely come in August, whereas they think the ECB and Fed will probably cut in June.
GBP/EUR 1.1730 GBP/USD 1.2840 GBP/AED 4.7084
GBP/AUD 1.9411 GBP/CHF 1.1250 GBP/CAD 1.7297
GBP/NZD 2.0709 EUR/USD 1.0932 GBP/ZAR 23.933