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CFDs are complex instruments. 72% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

GBP down as UK growth takes a dive

The pound is on the way down after data showed the UK economy shrank unexpectedly in October. Monthly GDP fell 0.3%, economists had been looking for a flat reading after a 0.2% expansion in September.

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(AI Video Transcript)

The UK economy

In a surprising turn of events, the UK economy shrank by 0.3% in October, causing the value of the British pound to decrease. Economists had predicted a steady or slight growth of 0.1% for the month. This decline in the economy reflects the growing pressures on households and businesses because of the rising cost of living. Almost every sector of the economy experienced a decline, with the service sector, including IT, legal firms, and film production, taking the biggest hit. Manufacturing and construction were also affected due to unfavorable weather conditions.

The Bank of England

This unexpected contraction in the economy may prompt the Bank of England to consider lowering interest rates sooner than expected. High interest rates have financially strained consumers, and the Bank of England understands that people have limited funds to spend on non-essential items. As winter approaches, households are expected to face even more pressure as costs for fuel and food continue to rise. Although the UK has not yet beaten inflation rates, there is speculation about whether the Bank of England will lower interest rates based on this recent economic decline.

GBP/USD

The decline in the value of the GBP against the USD can be seen in the charts, showing a significant drop after the announcement of the GDP data. This decline is a result of concerns about the shrinking British economy. The currency market will also be affected by the upcoming decision on interest rates by the US Federal Reserve, but it is widely expected that there will be no change in the rates.

In conclusion, the unexpected contraction in the UK economy has caused the value of the pound to decline. This decline is due to pressures on households and businesses caused by the high cost of living. The Bank of England may use this data as evidence to consider lowering interest rates earlier than anticipated. The decline in the pound's value is a reflection of concerns about the shrinking economy, and future events such as the US Federal Reserve's interest rate decision may also have an impact.


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