UK economic growth has been sluggish, but the BoE is likely to remain hawkish at its policy meeting tomorrow.

The UK economy chalked up a negative performance in October 2023. As a result, speculation surrounding the UK's economic outlook and interest rates have both become increasingly pessimistic.

Market reaction has been relatively limited as traders and investors await tomorrow's Fed and Bank of England (BoE) interest rate announcements. The GBP/USD rate was stuck at 1.2525 at the time of writing at the start of Wednesday's New York session (13/December), while GBP/JPY and GBP/EUR slipped nearly 0.5%.

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UK Gross Domestic Product (GDP) data recorded -0.3% (month-over-month) in October 2023, after growing +0.2% in the previous month. The figure missed the market forecast which was pegged at 0.0%.

UK GDP growth on an annualized basis also narrowed from +1.3% to +0.3%. A raft of other data from the same period also turned red, including industrial production, manufacturing output, and trade balance - matching yesterday's UK unemployment data.

The UK Office for National Statistics (ONS) said that "very wet weather" resulted in a decline in service sector output, resulting in declines in construction, retail, pubs, and tourism (outdoor leisure activities). In addition, high interest rates have further weighed on the economy.

Analysts expect UK economic growth to remain sluggish for the next few months. Market participants also advanced the projected timing of the BoE's first interest rate cut from August to June 2024. However, the BoE is likely to remain hawkish at the announcement of the results of its policy meeting tomorrow.

"October's figures suggest that we will see slightly negative fourth quarter GDP data in the UK, although that is not the Bank of England's main concern at the moment. We still expect tomorrow's hawkish tone to help Sterling, especially in cross pairs," said Francesco Pesole, ING Strategist.

The GBP/USD rate in particular may be more influenced by the Fed's interest rate announcement in the next few hours. Market participants will focus on the Dot Plot scheme where the FOMC could confirm or deny market speculation about a Fed rate cut next year.