GBP/USD is burdened by the uncertainty of the UK's economic prospects and interest rates, even though a recession may not occur.

The UK Office for National Statistics (ONS) released a series of high-impact economic data for the UK during the European session on October 12th. Unfortunately, the findings indicate a mediocre performance, which had a bearish impact on the pound sterling. GBP/USD fell by almost 0.8% to 1.2215 during the New York session.

GBP/USD

The Gross Domestic Product (GDP) data reveals a +0.2% (month-over-month) growth in the UK's economy in August 2023, which matches the consensus estimate, signifying a recovery. UK GDP growth also increased from +0.3% to +0.5% annually. However, other data missed the mark once again.

UK industrial production activity slipped to -0.7% in August 2023, whereas the consensus had only predicted a decrease of -0.2%. Manufacturing production declined further to -0.8%, twice as bad as the consensus estimate of -0.4%.

Experts suggest that these data points indicate that the UK's economy is unlikely to plunge into a recession, as feared by many since last year. However, the situation remains subdued.

"Whilst growth may be nothing to write about, the economy appears to be shaking off fears of a looming recession. Forecasters have long predicted a recession that has yet to arrive. The economy may continue to find a way to muddle through, despite the weather," Jonathan Moyes, head of investment research at Wealth Club, commented.

Samuel Tomb, the Chief UK Economist at Pantheon Macroeconomics, finds it challenging to determine whether the UK's economy will decline again in the third quarter of 2023. However, he is optimistic that growth will increase as the year progresses, and a recession will still be avoided.

The pound sterling is weighed down by uncertainty surrounding the economic outlook and interest rates. As long as the economic conditions remain as they are, market participants will continue to doubt the commitment of the Bank of England to maintain high interest rates.

EUR/GBP strengthened for the first time in the past week. GBP/JPY was corrected by about 0.4%. Meanwhile, the decline of GBP/USD received additional impetus from releasing US inflation data that exceeded estimates.