Negative UK GDP to Confirm Recession

Strikes in the UK are ramping up as rolling 3-month GDP is expected to pull out of negative, despite BOE warning the country is already in recession.

It's not looking good

The Confederation of British Industry was the latest institution to acknowledge that the UK was already in a recession, issuing a report that predicted productivity would be below the pre-pandemic trend at the end of 2024. The head of the institute said that Britain was in stagflation, seeing a "short and shallow" recession. The report pointed to businesses'; reluctance to spend, with investment still 9% below 2019.

The proliferation of strikes through December is unlikely to improve the mood of businesses. Various unions are looking for cost of living adjustments, which could force the BOE to keep raising rates even as the economy slows. This may be another reason investors stay on the sidelines on cable as the Fed's actions appear to work.

What the data says

If this quarter's results are negative, it will meet the technical definition of a recession. The first indications are positive, with rolling 3-month to October GDP expected to show a growth of 0.4%. It could indicate that the first month of the final quarter is moving higher.

On the other hand, the October goods trade balance is expected to move slightly less negative to -£14.1B from -£15.7B prior, the bulk of this reduction in the trade deficit coming from the Non-EU. Although this is expected to be due to a reduction in imports, which is often a negative sign, it likely is influenced by the drop in fuel prices experienced around the same time. Which could mean the UK could be seeing a shrinking trade deficit over the coming reports.

Cable prints another flag

Cable has left several rising flags back as it kept trending higher while above the major trendline originating at $1.0338. Following the completion of another flag at $1.21 (S1), the pair has started to accelerate again, aiming for $1.2325 (R1). If bulls recapture the top, it might encourage bids towards the next round resistance at $1.25 (R2). A double top might reverse the pound, with $1.19 (S2) significant support below the ascending trendline.

Key takeaways

According to the Confederation of British Industry, the UK is in a recession and is experiencing stagflation. Strikes are proliferating throughout the country, and there is a risk of a wage-price spiral that could force the BOE to keep raising interest rates. If Q4 GDP comes in negative, it will meet the technical definition too. However, it is not forecast to. Cable has left several rising flags back as it kept trending higher, but it might form a double top at $1.2325.