GBP/USD recovered some of its earlier losses as investors tried to assess the latest data releases from the UK. The pound’s reaction to the UK data was muted. The ONS reported that the UK GDP grew by 1% in Q4, compared to the market expectation of 1.1%, and Industrial Production expanded by 0.4% on a yearly basis. The larger than estimated traded deficit did not impress markets and did not provide any momentum to the GBP/USD pair.

The pound’s recovery was the result of a weaker US dollar as retreating US Treasury bond yields stopped any gains for the greenback and helped the pound rise. Market participants now look forward to the US release of the Preliminary University of Michigan US Consumer Sentiment Index. The release, along with market sentiment and US bond yields will be the main drivers for the GBP/USD currency pair.  

UK GDP report

Despite the disruption caused by the Omicron variant in December, the UK economy continued to grow in the final quarter of 2021. The UK GDP report published by the UK's Office for National Statistics (ONS) revealed that the UK economy grew by 1% on a quarterly basis in the fourth quarter. This reading came in slightly lower than the market expectation of 1.1% but failed to trigger a market reaction.

The ONS said: “The largest contributors to this quarterly increase were from human health and social work activities driven by increased GP visits at the start of the quarter, and a large increase in coronavirus (COVID-19) testing and tracing activities and the extension of the vaccination programme.”

Darren Morgan, director of Economic Statistics at the ONS, said GDP fell back slightly in December but “grew robustly across the fourth quarter as a whole with the NHS (National Health Service), couriers and employment agencies all helping to support the economy.”

UK posts the fastest growth in the G7 in 2021

The UK economy grew 7.5% in 2021, the fastest since the 1940s, after it recovered from the pandemic. It is the fastest growth since the second world war, despite the disruption caused by Omicron in December. It is ahead of the US (5.7% growth), France (+7%), Germany (+2.7%), and Italy (+6.5%) as well as the EU (+5.2%), and possibly Canada and Japan who have not released their 2021 GDP data. But, the UK is recovering from a lower base, since its economy contracted 9.4% in 2020, much lower than other G7 members.

A resilient economy

Chancellor of the Exchequer, Rishi Sunak praised the government’s support for helping the economy say strong and grow. He said: “Thanks to our £400bn package of support and making the right calls at the right time, the economy has been remarkably resilient; with the UK seeing the fastest growth in the G7 last year and GDP remaining at pre-pandemic levels in December. I’m proud of the resolve the whole country has demonstrated, and proud of our incredible vaccine programme which has allowed the economy to stay open. We’re continuing to help the economy rebuild through our Plan for Jobs, boost for business investment and support for households with the cost of living.”

 

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