GBP: Economic Resilience Amidst GDP Upsurge and BoE Hawkish Stance Facing Tests

GBP

November GDP surprised to the upside last week, calming concerns over the possibility of a technical recession in Q4. The economy expanded by 0.3% month-on-month, following a contraction of the same magnitude in October. If the latest PMI data is anything to go by, another modest expansion in activity may be on the way in December, which would likely avoid the confirmation of a technical recession once the quarterly data is released in mid-February. The reaction in sterling to the data was subdued, however.

 

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This week's data will test the Bank of England's recent hawkishness. In addition to the key December CPI inflation report, we will get November wage and December employment figures. While both wage and inflation numbers are expected to show a downward trend, they are both higher than in the Eurozone or the US. Core inflation is still hovering around 5%, and wages are growing at a near 7% rate, and we will have to see substantial reductions in both before the MPC is comfortable with the start of the cutting cycle.