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What a recession means for the Pound

Both Japan & the UK enter a technical recession..

The 'R' word is never welcome in economics, but at least thanks to the powers that be (governments & central banks), it is far less feared than it was once was. Still, the deeper and/or the longer a recession and the more of a very real concern it does become. 

With Japan also entering a recession, it means the UK isn't the only one, which gives the nation and its interested parties at least some comfort. However, in terms of a key market driver; confidence, it is very bad news indeed. 

Investors will become nervous from today's news and look to hold their assets in safe havens, like the the world's most traded currency, the USD. As an 'emerging' currency, GBP will be pinned down somewhat until the UK recovers. 

How bad is this UK recession?

Excluding the Covid pandemic, 2023 saw the weakest annual economic growth since 2009 (0.1%). Forecasts suggest a growth rate of around 0.7% this year, which means the UK could be in a recession for the next 6-months at least, until the economy potentially turns a corner. 

The Government will be limited in what they can do in a recession, but because interest rates are currently high, the central bank can act to kick-start the economy. Today's news, means the BoE may need to act faster than anticipated to lower interest rates, which will hurt the Pound.