The UK GDP report was released this morning, showing a contraction in December, as restrictions were reintroduced to the country at the end of 2021, due to the omicron variant. The Q4 GDP QoQ ticked lower, to 1.0%, from 1.1% in Q3. But the UK is going to lift all coronavirus restrictions, which will have a positive impact on the economy. European countries are also starting to lift restrictions, as the coronavirus is now more like a normal flu, and I don’t think restrictions will be brought back again next winter.

The GBP has started to feel that, and the GBP/USD has turned bullish this month. After the GDP report, we saw another bounce off the 200 daily SMA (purple), so the pressure remains to the upside. The Bank of England has hiked interest rates twice already, in the last two meetings, as inflation continues to grow, so the reasons for the GBP being bullish are increasing.

UK GDP Report by ONS – February 11, 2022

• December GDP MoM -0.2% vs -0.6% expected
• November GDP was +0.9%
• Q4 preliminary GDP +1.0% vs +1.1% expected
• Q3 GDP was +1.1%
• GDP YoY +6.5% vs +6.4% expected
• Prior GDP YoY +6.8%
• Prelim business investment QoQ 0.9% vs -3.0%
• Prior business investment was -2.5%

An accompaniment to the quarterly GDP report was released at the same time. The bright spot is that the UK economy didn’t contract by as much as anticipated in December, despite the hit from the omicron variant. UK GDP is estimated to have increased by 7.5% last year, with Q4 GDP, as a whole, at 0.4% below the pre-pandemic level back in Q4 of 2019. That is, at least, an encouraging sign, and it bolsters hopes of a stronger recovery this year, after having seen the impact of omicron being rather minimal, and less than anticipated.

GBP/USD Live Chart