Sterling Surge as UK Economy Unexpectedly Grows

Sterling rose following data that showed unexpected growth in the UK's economy for Q4, counteracting gloomy forecasts. Despite the uptick, experts warn this growth is not reflective of economic health. Sterling remains volatile amidst expectations of further Bank of England easing due to economic slowdown threats.

In an unexpected twist, the British economy posted positive growth at the end of last year, sparking a rise in the value of sterling on Thursday, which reached its highest level against the dollar in over a week. Data from the Office for National Statistics revealed a 0.1% growth in GDP for the final quarter, going against economist forecasts of a 0.1% contraction.

Despite the positive development, analysts such as ING economist James Smith cautioned that the growth attributed to inventory surges does not truly signify a robust economic state, with household consumption, exports, and business investment showing stagnant or negative trends.

With sterling last year’s top-performing G10 currency, its performance in 2023 has seen a slight decline as market participants anticipate additional easing measures from the Bank of England amid ongoing economic challenges. The tensions are palpable in the market, with investors closely watching the Bank's moves, forecasting 54 basis points of easing this year as underlying risks persist.

(With inputs from agencies.)