LONDON - The pound eased on Friday after data showed the UK economy ground to a halt in the final three months of 2022, avoiding a technical recession, but logging zero growth.
Monthly British gross domestic product data for December - a month marked by widespread rail strikes and bad weather - showed a 0.5% contraction, the Office for National Statistics said, larger than the 0.3% forecast.
The Bank of England forecast last week that Britain would enter a shallow but lengthy recession, starting in the first quarter of this year and lasting five quarters.
"Ultimately, this isn't a story of whether the UK is in recession or not as that's just a simple technical definition," OANDA strategist Craig Erlam said.
"It's a story of zero growth - quite literally in the case of the fourth quarter - and the fact that this likely represents the recent past, present, and near-term future prospects for the UK economy. High but falling inflation and basically no growth for some time. It's all a bit bleak really," he said.
"The negative impact on the pound was brief though as the data doesn't tell us anything we didn't already know, nor does it alter the outlook on inflation or interest rates," he added.
Money markets show traders believe UK interest rates will peak below 4.40% by late summer, from 4% right now. UK consumer inflation data is due next week and may have more impact on those expectations.
Sterling was last down 0.3% against the dollar at $1.2089, but was still heading for its strongest weekly gain in three weeks, thanks in part to a rebound in investor confidence that has lifted non-dollar currencies and other risk assets.
The pound posted its weakest daily performance against the yen, which got a surprise boost from the likely appointment of academic Kazuo Ueda as the Bank of Japan's next governor, according to two government officials.
Ueda, 71, a former member of the BOJ's policy board and an academic at Kyoritsu Women's University, is seen as an expert on monetary policy and played a key role in battling the initial phase of Japan's deflation with the introduction of huge amounts of asset purchases and forward guidance for financial markets.
But most analysts said his appointment was totally unexpected - he was not even considered a dark horse candidate - and it was hard to tell immediately what that meant for any changes in the bank's near-term monetary policy.
Sterling was last down 0.7% on the day against the yen at 158.39 yen. Against the euro, the pound was roughly flat at 88.53 pence.
(Reporting by Amanda Cooper; Editing by Arun Koyyur)