The British pound weakened against most major currencies in the European session on Friday, after U.K. economy logged an unexpected contraction at the start of the year on a sharp fall in production.

Data from the Office for National Statistics showed that the U.K. Gross domestic product shrank 0.1 percent on a monthly basis in January, following a growth of 0.4 percent in December. GDP was expected to grow 0.1 percent.

The largest contributor to the fall was industrial production, which fell 0.9 percent reversing a 0.5 percent gain in December. A similar sharp fall was last reported in April 2024.

Manufacturing output slid 1.1 percent, in contrast to the 0.7 percent increase in the previous month. At the same time, construction output was down 0.2 percent.

Partially offsetting these falls, services output edged up 0.1 percent. But this was weaker than the 0.4 percent expansion seen in December.

In the three months to January, real GDP moved up 0.2 percent from the three months to October. Compared to last year, GDP growth was 1.2 percent.

On a yearly basis, GDP grew 1.0 percent in January, weaker than the forecast of 1.2 percent. Markets remain cautious on heightened trade tensions and growing concerns about an economic slowdown.

With most officials guiding a "gradual and cautious" policy-easing strategy, the Bank of England (BoE) is anticipated to keep interest rates unchanged at the next meeting of the Monetary Policy Committee coming next week. The base rate of 4.5% would remain constant as a result. Amid worries about growth forecasts, the U.K. central bank opted to lower interest rates by 25 basis points (bps) at its February meeting.

In the European trading today, the pound fell to a 2-day low of 1.2918 against the U.S. dollar, from an early high of 1.2959. The next possible downside target for the pound is seen around the 1.25 region.

Against the euro and the Swiss franc, the pound edged down to 0.8394 and 1.1420 from early highs of 0.8375 and 1.1446, respectively. If the pound extends its downtrend, it is likely to find support around 0.81 against the euro and 1.12 against the franc.

Meanwhile, the pound rose to 2-day high of 192.68 against the yen, from an early low of 191.56. The pound may test resistance around the 188.00 region.

Looking ahead, U.S. Michigan consumer sentiment for March and U.S. Baker Hughes oil rig count data are slated for release in the New York session.

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