Morning Brief – The penny drops

Charles Porter
Thu 15 Feb 2024

The penny drops

With UK GDP growth data released at 7am today, many commentators had looked ahead to today as a day of reckoning for the UK and its economy. With Q3 2023 already having published a negative growth rate, if contraction was confirmed in the UK for Q4 in this morning’s data then it can (and certainly would) be claimed the UK entered a recession in 2023. As we know, the term recession is one with an unfortunate definition for those falling on the wrong side of it. The definition itself is rather arbitrary, defined only as two consecutive quarters of zero or negative growth. One recession can therefore differ immensely from another given that simple stagnation for 6 months and total economic collapse over a decade still technically carry the same label ‘recession’. 

This is an election year, which means that how today’s data fell could have a serious impact upon the shape of political governance. At such a crucial political time, the fact anyone can claim the UK entered a recession last year under the Conservative Party’s watch will give a boost to the opposition. I’m certain the government would have been hoping the 3-month average GDP reading this morning had scraped in within positive territory. Whilst the statistic is somewhat irrelevant from an economic and financial point of view, the reading will have huge anecdotal power in the Commons and in newspapers. 

As we know with GDP data, the preliminary data will be read again when figures are finalised. This won’t be until March but even if the figures show a correction into positive territory, the political damage from the superficial economic loss will have already been incurred. GBP has taken a slight leg lower in early European trading this morning following the confirmation of a recession. GBPEUR and GBPUSD both shave circa 20 pips from their pre-release levels. But markets will be watching for the political impact that this economic weaponry has gifted opposition parties.

Discussion and Analysis by Charles Porter

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