UK GDP Prelim QQ* (Q4) -0.3% vs. Exp. -0.1% (Prev. -0.1%)

ONS:

• "While the economy has now decreased for two consecutive quarters, across 2023, GDP is estimated to have increased by 0.1% compared with 2022" adding "This is the weakest annual change in real GDP since the financial crisis in 2009, excluding the year 2020, which was affected by the coronavirus (COVID-19) pandemic"


• "This release includes revisions to periods Quarter 1 (Jan to Mar) to Quarter 3 (July to Sept) 2023, where growth in Quarter 1 2023 has been revised down by 0.1 percentage points, while total GDP in Quarter 2 (Apr to June) and Quarter 3 2023 are unrevised."


• GDP Deflator: "The implied price of GDP rose by 0.2% in Quarter 4 2023, where the quarterly increase is primarily driven by higher prices in exports, government consumption and household consumption... partially offset by a fall in the implied price for gross capital formation, as well as an increase in the implied price of imports..."

Reaction details (07:09)

• Sterling came under immediate pressure with focus on the soft Q/Q print for Q4 and the UK entering a technical recession, GBP/USD fell from 1.2569 to 1.2546 before paring.


• Choppy but modest reaction in Bund Mar'24 which rose from 133.96 to a high of 134.03 before extending to 134.05

Market Pricing via Reuters (at 07:45GMT)

• March -1bp (prev. -1bp)


• May -6bps (prev. -5bps)


• June -18bps (prev. -15bps)


• August -32bps (prev. -29bps)


• September -49bps (prev. -43bps)


• November -65bps (prev. -60bps)


• December -76bps (prev. -70bps)

Analysis details (07:20)

• While the UK entering a technical recession is the headline grabber, BoE Governor Bailey has already dismissed the significance of this saying (Feb 12th) that he "wouldn't put too much weight on whether the UK enters a technical recession" and added that they are starting to see signs of an upturn.


• Turning to December specifically the 3M & M/M prints were both in negative territory while the Y/Y came in flat, the latter two metrics were also subject to negative revisions. However, the breakdown of the months data is a slightly more mixed picture with Industrial Output & Manufacturing Output printing firmer than expected. On the flip side, and concerning given the UK's bias, Services came in mixed with negative revisions and the Y/Y at 0.1% notably printed below the forecast range.


• For the doves/unchanged voters the continued moderation in the GDP Implied Deflator is a welcome sign.


• Overall, the data is unlikely to change the calculus for the BoE significantly given Bailey has already dismissed the importance of a technical recession, but may well spark a slight dovish reaction in pricing particularly given the deflator & services. 


• Next up we have BoE's Greene (Neutral) & Mann (Hawk, dissenter) at 13:00GMT and 13:50GMT respectively before January Retail Sales on Friday for more timely insight. A release which is expected to print firmer across the board.

15 Feb 2024 - 07:00- Fixed IncomeData- Source: Reuters