Is the UK really in a recession? Perhaps 2024 data will be different


It's Monday morning, and a deluge of doom and gloom relating to a recession having begun in the United Kingdom is abound.

Many mainstream news channels, along with analyses coming from a number of financial markets commentators, are outlining the potential contraction of the British economy should the central bank monetary policy remain hardline regarding interest rates.

There is a school of thought which warns investors that if the Bank of England does not decide to reduce interest rates, the British economy would perhaps become less competitive, and language such as causing a worsening of an existing recession could take place.

This is a very intriguing view, however, because the British Pound has been performing against other major currencies in a pattern that would suggest anything but a recession is even existent, let alone in full swing as is being touted by many reports.

During the course of this year so far, the British Pound has been gaining value significantly against the Euro, with the EURGBP pair having hit 0.850 at the bottom of the market on February 14, according to FXOpen charts, a far cry from its 0.869 value on January 1.

Indicative pricing only

A gross domestic product (GDP) figure which reduced by 0.3% between October and December 2023 was released this morning by the Office of National Statistics, which is one of the factors that have caused observers to consider the British economy to be slipping into a recession - a recession being quantified by a national economy contracting for more than six consecutive months during an annual period, however if a wider view is taken, central bank policy across many Western nations has been similar for quite some time now, that being to maintain interest rates at relatively high levels in order to attempt to curb spending.

Should such a policy go to plan, it may well affect overall GDP as large companies and small businesses alike may scale back operations to reduce costs as they have to pay more each month to service debt commitments and also to meet lower demand for products at a time during which interest rates are high.

On the other hand, the US has had similarly stringent interest rate rises over recent years and has decided to keep interest rates at their current level rather than reduce them, yet the US economy is in good health despite bank failures and a worrying level of national debt. This means that purely looking at high-interest rates as a catalyst for recession does not see the whole picture.

There is a minor blip in the rally against the Euro that the British Pound has been experiencing since the beginning of this year, as this morning's trading opened with the EURGBP pair trading at 0.855 on FXOpen's charts. This is still representative of a very strong Pound compared to the Euro when looked at over the period of the first few weeks of this year.

The Bank of England has yet to reveal its monetary policy with regard to interest rates for the entire year ahead; however, given that the European, British, and US central bankers have taken a similar approach, it seems that conservatism could be expected, but of course, each authority is independent and can choose its own path.

Currently, the British public is still coping with a prolonged cost of living crisis and has endured two years of high energy bills; therefore, spending per household has been concentrated on priority expenses rather than extraneous items, which may contribute toward a less buoyant overall economy, but the Pound's performance against the Euro at the beginning of this year, which is the immediate period after the official GDP figures showing a recession, there could be a turning point meaning it will be interesting to see the GDP figures for the first quarter of this year when released.

Meanwhile, the Bank of England's decisions will likely be awaited with great interest.

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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