Could UK fall into a technical recession?

The UK’s GDP is expected to experience a marginal contraction in Q4, with the Bank of England expecting a slow but steady increase in growth over the next few quarters.

If the GDP prints meet market consensus, the UK economy would have entered a “technical recession” following the 0.1% contraction in the previous quarter.

The Bank of England’s officials suggest that two-thirds of the effect of heightened interest rates on GDP levels have already materialized.

The UK’s Q4 GDP flash estimate is set to be released on February 15, with the economy expected to shrink by 0.1% in the three months to December. The GDP is forecasted to contract by 0.2% in December, down from 0.3% in November.

A breach of the 2024 low of 1.2518, recorded on February 5, exposes GBP/USD to further losses to, initially, the December 2023 bottom of 1.2500 seen on December 13, could lead to further losses to the December 2023 bottom of 1.2500.

The BoE is expected to be one of the latest central banks to start reducing its policy rates, with the September meeting being a likely candidate.