EUR/GBP jumps above 0.8550 as UK shifts into a technical recession

• EUR/GBP advances to 0.8550 as the UK economy remains in a recession in H1 of 2023.
• The UK economy contracted by 0.3% in Q42023, while investors anticipated a growth of 0.1%.
• The ECB continues to remain data-dependent for further monetary policy action.

The EUR/GBP pair climbs above 0.8550 as the latest preliminary Q4 Gross Domestic Product (GDP) data from the United Kingdom Office for National Statistics (ONS) showed that the economy witnessed a de-growth by 0.3%.

Surprisingly, the UK economy contracted by 0.3% in the last quarter of 2023, while investors forecasted a growth of 0.1%. In the July-September quarter, the UK economy was contracted by 0.1%. Two consecutive quarters of a slowdown in an economy confirms that it has fallen into a technical recession.

This has prompted hopes of an early rate cut by the Bank of England (BoE) as the maintenance of interest rates at their current level could worsen the economic outlook. Meanwhile, lower-than-anticipated inflation data for January has also flared up expectations for quick rate cuts.

Going forward, the BoE is expected to face a balancing act between a poor economic outlook and high persistent price pressures. On Wednesday, BoE Governor Andrew Baily said policymakers would discuss reducing interest rates after getting enough evidence about inflation declining towards the 2% target.

On the Eurozone front, the Euro strengthens despite European Central Bank (ECB) President Christine Lagarde's reiterated need to remain data-dependent for upcoming monetary policy meetings. ECB Lagarde said weakness in economic activities is broad-based. When asked about the inflation outlook, Lagarde said the disinflation process is ongoing and expected to come down considerably this year.