UK Economy Faces Headwinds Amid Inflation and Job Market Uncertainty

Despite improving consumer confidence, British retail sales growth slowed in February. Rising employment costs and new tax obligations are prompting businesses to consider price increases and reduced hiring. Surveys indicate that businesses are raising prices due to employment costs, while service-sector job cuts are accelerating amid economic uncertainty. The Bank of England is weighing its approach to interest rate cuts amid global volatility.

Grocery inflation remains steady, but tax increases and wage pressures may drive prices higher. With inflation projected to rise to 3.7% later this year, businesses are preparing for higher costs that could impact household spending. Britain’s job market showed signs of cooling in February, as permanent job placements continued to decline. The BoE anticipates private-sector wage growth slowing from over 6% in 2024 to around 3.75% by late 2025.

The broader economy presents mixed signals. The UK’s services sector reported moderate growth, but employment in the industry fell at the fastest rate since 2020. Construction suffered a sharp downturn, particularly in residential housebuilding, which declined at one of the fastest rates since 2009. High borrowing costs and weak demand have led to job losses and reduced investment.

The housing market also faced headwinds in February, with prices slipping as demand cooled following a pre-tax-incentive rush. Mortgage lending in January reached its highest level since 2022, but approvals for new loans declined. Analysts expect lending to slow further as tax incentives expire.

Meanwhile, the U.S. dollar edged higher Monday after hitting a four-month low, though concerns remain over Trump’s trade policies. Uncertainty has grown following his new tariffs on Mexico, Canada, and China, raising fears of an economic downturn. Investors are closely watching upcoming inflation data for Federal Reserve policy signals. Analysts expect core inflation to remain steady, supporting Fed Chair Jerome Powell’s view that rate cuts are not immediately necessary. However, futures markets anticipate cuts beginning in June if economic risks persist.

Goldman Sachs has downgraded U.S. GDP growth to 1.7% while raising its inflation outlook. This puts the Fed in a dilemma—maintain rates to control inflation or cut them to support employment. While markets anticipate rate cuts, some economists believe the Fed will proceed cautiously to prevent inflation expectations from becoming entrenched.

As a result, if risk sentiment deteriorates due to global uncertainty, the dollar may strengthen, pressuring GBP/USD toward 1.2750 in the short term. Conversely, if UK inflation surprises to the upside and the BoE maintains a hawkish stance, GBP/USD could push above 1.2950 toward 1.3000. However, sustained upside may be limited by weak UK economic data.

Data for Technical Analysis (30Min) CFD GBP/USD

Resistance : 1.2893, 1.2894, 1.2897

Support : 1.2887, 1.2886, 1.2883

30Min Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 1.2883 - 1.2887 is touched, but the support at 1.2887 cannot be broken, the TP may be set around 1.2893 and the SL around 1.2881, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2893 - 1.2897, TP may be set around 1.2902 and SL around 1.2895, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2893 - 1.2897 is touched, but the resistance at 1.2893 cannot be broken, the TP may be set around 1.2886 and the SL around 1.2899, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2883 - 1.2887, TP may be set around 1.2875 and SL around 1.2885, or up to the risk appetite.       

Pivot Points Mar 11, 2025 02:58AM GMT