Morning Market Brief: March 14, 2024

UK economy shows signs of improvement?

The Office for National Statistics reported that gross domestic product in the UK grew in January. The UK economy, one of the largest in the world, fell into a technical recession in the fourth quarter of 2023 amid tight financial conditions, but it appears to be picking up in early 2024. Still, challenges remain, which could nudge the Bank of England (BoE) to begin lowering interest rates later this year.?

• The UK posted economic growth of 0.2% in January over the previous month. The UK economy fell into a technical recession in the fourth quarter of 2023 as high inflation and borrowing costs weighed on consumer and business activity. January’s growth raises hope that the harmful effects from tight monetary policy might be over.
• January’s improvement was driven by a rise in construction output and retail trade. Construction output rose by 1.1% in January, its largest increase since June 2023. Home builders had a particularly robust month as they sought to increase supply housing to meet climbing demand over the past few years.
• Conversely, industrial production shrank over the month of January, falling by 0.2%. Manufacturing output was relatively muted over the month in response to weak demand with financial conditions remaining tight.
• While January’s data points to improving economic conditions, growth might remain relatively sluggish. Financial conditions remain tight, weighing on households and businesses. Relatively weak external demand might continue to impact the UK’s manufacturing and services sectors.

The UK economy is improving but doesn’t appear to be completely out of the woods yet. Tight financial conditions could continue to hamper economic activity in the months ahead. Combined with falling inflation, the BoE is expected to begin lowering interest rates later in 2024. The results could be good news for the British pound, which has performed well this year with the BoE expected to stay higher for longer and data pointing to improving economic activity.

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