The British pound weakened against most major currencies during the European trading session on Friday, following disappointing economic data from the United Kingdom. The latest figures from the Office for National Statistics revealed an unexpected contraction in the U.K. economy, driven by a sharp decline in industrial output.
Gross domestic product (GDP) fell by 0.1% in January, reversing a 0.4% increase in December. Analysts had anticipated a modest 0.1% growth. The main drag came from industrial production, which dropped by 0.9%, marking the steepest decline since April 2024. Manufacturing output also slipped 1.1%, compared to a 0.7% rise in the previous month. Construction activity declined slightly by 0.2%.
Although the services sector managed a modest 0.1% gain, it remained below December’s 0.4% growth, providing only partial support to the overall economy.
On a three-month basis, GDP rose 0.2% compared to the prior quarter. However, annual GDP growth came in at 1.0%, falling short of the 1.2% forecast.
The weaker-than-expected data has added to market uncertainty, amid lingering trade tensions and growing concerns over a potential slowdown. Despite this, the Bank of England is widely expected to hold interest rates steady at 4.5% in its upcoming policy meeting. The central bank had previously cut rates by 25 basis points in February.
Currency markets reacted swiftly, with the pound sliding to a two-day low of 1.2918 against the U.S. dollar, down from 1.2959. It also dipped against the euro and Swiss franc, trading at 0.8394 and 1.1420, respectively. However, the pound strengthened against the yen, reaching a two-day high of 192.68.
Markets now await key U.S. economic indicators, including Michigan consumer sentiment data and Baker Hughes oil rig counts, due later in the day.
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