Pound rises after UK economy escapes recession

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
UK GDP optimism has bumped up the pound. Photo: Jim Dyson/Getty Images

The pound strengthened against the dollar and euro on Monday as official figures showed UK economy had avoided slipping into recession.

New estimates from the Office for National Statistics (ONS) show British GDP grew by 0.3% between July and September.

It marked an improvement on the previous quarter’s contraction of 0.2%, the first decline since 2012.

However, the third quarter figure was lower than widely forecast. Barclays had said in a note sent to clients on Sunday: “We expect Q3 GDP to print at 0.4%, supported by temporary factors relating to the car factory closures.”

Sterling had been trading higher ahead of the data. Sterling was up 0.7% against the euro (GBPEUR=X) to €1.1676 and up 0.8% against the dollar (GBPUSD=X) to $1.2879 at around 12.25pm after the latest data was released.

READ MORE: Figures show UK growth slows to lowest in a decade

Business leaders welcomed the growth, but said avoiding recession was nothing to celebrate and warned of an “alarming loss of momentum” amid a global economic slowdown and Brexit uncertainty.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: “While there was welcome confirmation that the UK avoided recession in the third quarter, the stronger headline figure masks an alarming loss of momentum through the quarter from a relatively strong July outturn and therefore does little to suggest any meaningful improvement in UK’s underlying growth trajectory.”

“The dominant services sector was the main driver of GDP growth in the quarter with industrial production and construction sectors adding little to overall UK GDP growth.”

READ MORE: UK pay to rise for thousands as living wage increases

Sterling’s strength came despite negative action from credit rating giant Moody’s on Friday night. Moody’s downgraded Britain’s outlook from “stable” to “negative”, meaning the UK is at risk of a downgrade.

The agency said the outlook downgrade was driven by the huge recent spending pledges of both main political parties, as well as ongoing Brexit issues that have diminished “the capability and predictability that has traditionally distinguished the UK’s institutional framework.”

Barclays said on Monday: “Data disappointments could add to the near-term bearish narrative even though, ultimately, the path for GBP over the next three-six months should remain driven by politics.”

Additional reporting by Tom Belger.