In the last few weeks, releases in the UK have shown weakness in the economy, with concerns of lacklustre growth, rampant inflation, and a weak labour market. Beyond the everyday implications, these may prove significant for the forex market, shaking confidence in the GBP.
GBP Slow Growth
For the quarter spanning July to September, the UK’s growth has slowed to 0.1%. This follows a faster growth report in Q2, at 0.3%, and an impressive Q1 performance at 0.7%. The figure also underperformed economist forecasts, eyeing 0.2%.
Difficulties in automobile manufacturing are one of the primary things weighing on the economy. The Office for National Statistics cited a significant fall in car production in September, after a cyber-attack on Jaguar Land Rover.
On September 2, Jaguar Land Rover confirmed that it was the target of a cyber-attack that severely disrupted its IT systems globally.
Production in factories around the world was effectively halted from late August, and only partially resumed manufacturing operations on October 7th, only fully kicking into gear on November 14th. This means that the production stall may also show lingering results in Q4.
The factory shutdown came at a particularly inconvenient time for the UK economy, the new licence plate registration month. This translated to delays in delivering and registering vehicles.
However, this attack on a single company isn’t what’s behind the growth stall as a whole. Consumer spending growth is still weak, and according to forecasts, it may remain so until the end of the year.
Business investment is another key concern. Savings rates remain high, and general uncertainty, high inflation, and trouble in the workforce have made businesses tentative.
GBP Inflation
Inflation remains another key concern for the UK. Year through September, it has grown to 3.8%, repeating the number from July and August.
This number sparks worry, being the highest since January 2024. The broader number, including owner-occupier housing prices, shows an even more alarming rate at 4.1%.
However, the situation may not be as dire as the numbers indicate. When looking at economic reports, expectations are a vital thing to consider. As such, even high numbers can be “positive” if the expectations are worse.
In this case, economists pegged the CPI to increase to 4.0%. As such, the market impacts weren’t as dire, with a better-than-expected performance.
Still, the inflation rate remains well above the Bank of England’s target rate of 2%. Food prices are a primary driver for inflation, with increases in five months, ending in August. Other segments, such as housing, transport, and services, are further fuel for price increases.
The silver lining is that the latest official figures state that regular pay has outperformed inflation. The average annual growth in wages in the UK in Q3 is 4.6%, dropping from the previous quarter’s 4.7%. With inflation accounted for, the numbers show a rise of 0.8%.
The signals from the 3.8% inflation figure are mixed. Certain forecasts claim that this means the number may have peaked and will be more manageable in the future. However, others look at different struggles in the UK economy, including uncertainty among consumers and cost-of-living difficulties, as worrying.
Labour Market
The UK labour market has also shown weakness, with unemployment rising to 5% in Q3. The number is the highest since the December-February period in 2021. It also exceeded projections ahead of the November budget, which predicted 4.9%.
Coupling with this, vacancies remain mostly flat. This may indicate tension in the labour market, where worker and employer expectations remain mismatched.
Liz McKeown, the ONS’s director of economic statistics, confirmed this sentiment: “Taken together, these figures point to a weakening labour market. Meanwhile, the unemployment rate is up in the latest quarter to a post-pandemic high. The number of job vacancies, however, remains broadly unchanged.”
Taking into consideration that the COVID pandemic has skewed unemployment results, the current unemployment rate is the largest it’s been since August 2016.
The primary cause has mixed opinions. Some consider that the number of young people not training or joining the workforce, while others blame the government’s policy.
Helen Whately, shadow work and pensions secretary, stated that policies were “hiking up taxes on jobs, piling red tape on businesses, and destroying confidence in the economy.”
As noted earlier, however, wages have grown. The public sector is spearheading the expansion, with earnings increasing 6.6%, while the private sector is lagging behind at 4.2%.
However, there are concerns that this growth won’t last for much longer. As unemployment rises and vacancies stall, workers may have limited bargaining power. Businesses, on the other hand, have reported labour shortages, leading to an awkward standoff.
On the business side, higher costs of hiring seem to be the primary concern. With last year’s Budget increasing National Insurance contributions and the national living wage, companies have had to take on losses to sustain their workforces.
Forex Results
In the previous week, the GBP has shown weakness against other currencies. The pound lost some ground in most of its pairings upon the release of the economic data, with movement being choppy and inconsistent.
Most markedly, GBP/CHF has fallen from close to the 1.060 range to 1.455. EUR/GBP has risen from the 0.879 range to briefly touch 0.886. GBP/USD has remained mostly flat, although with intense movement in both directions throughout the week.
At the start of this week, the UK has regained some ground against a lot of its pairings. This may be a result of market reactions subsiding and traders waiting for the next batch of releases to act, or hopes of rate cuts providing some relief to the UK economy.
Rate Cuts
All of these economic indicators point to a significantly increased likelihood of rate cuts. The last cut came in August 2025, reducing borrowing rates from 4.25% to 4%.
Further cuts were broadly expected in November’s MPC meeting, which ended in a tense 5-4 vote to keep rates flat. The next meeting is scheduled for Thursday, December 18.
UK residents and investors alike are keeping their eyes peeled for this date, and traders need to be ready to act, as markets are sure to react significantly regardless of the result
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