The economy performed in line with market expectations in the fourth quarter as real GDP was unchanged from the previous period when it declined a slightly smaller 0.2 percent. Annual growth decreased from 1.9 percent to 0.4 percent, its weakest reading since the first quarter of 2021.

Household spending edged up a quarterly 0.1 percent following a 0.4 percent drop in the third quarter and gross fixed capital formation advanced a solid 1.5 percent. Within the latter, business investment was up a healthy 4.8 percent, more than reversing the third quarter's 3.2 percent drop. However, government expenditure was down 0.2 percent, its first negative print since the start of 2021. Business inventories added 1.1 percentage points but this was more than fully accounted for by alignment and balancing factors.

Consequently, headline growth would have been stronger but for foreign trade which subtracted some 0.8 percentage points. The negative impact here reflected a 1.0 percent slide in exports compounded by a 1.5 percent increase in imports.

The fourth quarter data were just a little softer than expected by the BoE which last week estimated an increase of 0.1 percent. However, with stagnation last quarter masking a sizeable 0.5 percent decline in total output in December, today's update sets the scene for a probable weak first quarter and, most likely, recession by the middle of the year. Still, with the UK's ECDI at minus 1 and the ECDI-P at minus 5, in general economic activity is broadly matching market expectations and Bank Rate may well go up again next month.

Total output is seen unchanged in the fourth quarter versus a 0.3 percent contraction in the third quarter, trimming annual growth to an expected 0.4 percent from the prior quarter's growth of 1.9 percent.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Since 2018, the first, or provisional, estimate includes the GDP expenditure components as well as data on the main output sectors. These results are updated in the second, and final, report.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth. For example, if the UK reports that the consumer price index has risen more than the Bank of England's 2 percent inflation target, demand for sterling could decline. Similarly, when the Bank of England lowers interest rates, the pound sterling weakens. (Currency traders also watch the interest rate spread between countries.)