The British pound held steady against the dollar in early European trading on Friday, maintaining its highest level since late December at $1.2580. This stability follows a surge on Thursday, fueled by better-than-anticipated UK economic growth figures for the fourth quarter of 2024.
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The Office for National Statistics (ONS) reported 0.1% growth in the UK economy during the final quarter of last year, defying recessionary concerns. This unexpected GDP uptick provided a respite for the government, amidst worries about stagflation – a scenario characterized by stagnant economic growth coupled with persistent inflation. The modest growth also led investors to reassess their expectations of another interest rate cut by the Bank of England (BoE) in March.
Positive Growth, Cautious Optimism
Danni Hewson, head of financial analysis at AJ Bell, acknowledged the significance of the growth, however small, stating that “miniscule growth is still growth.” This allows the government to assert that their economic strategy is starting to yield results.
However, Hewson cautioned that upcoming tax increases from the autumn budget and potential trade disruptions from US tariffs pose significant challenges if the “economic engine is still running on fumes.” This underscores the fragility of the current economic recovery. US President Donald Trump’s recently announced plan for reciprocal trade tariffs, while delayed in implementation, introduces further uncertainty into the global economic outlook. Though negotiations are planned, the potential impact on UK trade remains a concern. Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted that while the UK primarily trades services with the US, hopes of escaping tariff repercussions entirely are dwindling.
The pound remained relatively unchanged against the euro (€1.2007) on Friday morning.
Gold Prices Surge Amidst Uncertainty
Gold prices continued their upward trajectory on Friday morning, nearing record highs as investors sought refuge from the uncertainty surrounding trade tariff developments. Spot gold climbed 0.3% to $2,936.26 per ounce, while gold futures advanced 0.5% to $2,958.80.
Jim Reid, a market strategist at Deutsche Bank, observed that Trump’s press conference on reciprocal tariffs lacked concrete details, suggesting a protracted country-by-country negotiation process. This ambiguity fuels uncertainty, driving investors toward safe-haven assets like gold, which is also considered a hedge against inflation – a potential consequence of escalating tariffs. Gold’s inverse relationship with the dollar further strengthens its appeal as the dollar’s purchasing power weakens with rising inflation.
Oil Prices Respond to Increased Demand and Tariff Delays
Oil prices also saw gains on Friday, propelled by increased demand and indications of a more gradual approach to reciprocal trade tariffs. Brent crude futures rose 0.6% to $75.45 a barrel, while US West Texas Intermediate (WTI) crude climbed 0.5% to $71.61.
JPMorgan analysts reported a surge in global oil demand to 103.4 million barrels per day (bpd), a significant 1.4 million bpd year-on-year increase. This surge, coupled with potential gas-to-oil shifts due to rising European gas prices, contributes to the upward pressure on oil prices. Analysts predict further increases in heating fuel use and a narrowing gap between actual and projected demand.
Broader Market Trends
The FTSE 100 experienced a slight dip of 0.2% on Friday morning, settling at 8,744 points.
In conclusion, the UK’s unexpected economic growth provides a momentary reprieve from recessionary fears, but underlying challenges remain. Trade tariff uncertainties and potential inflationary pressures continue to influence investor behavior, driving demand for safe-haven assets like gold and impacting oil prices through increased demand. The interplay of these factors will continue to shape market trends in the coming weeks.
