GBP declined against most of its major rivals in the European session on Friday, as investor sentiment was weighed down by a series of grim economic data out of the UK. It fell against USD, CHF, EUR and JPY, rose against AUD, and changed little against CAD and NZD.

The report from IHS Markit and the Chartered Institute of Procurement & Supply (CIPS) showed that Britain suffered its steepest drop in business activity since May in January due to the imposition of a third national lockdown at the beginning of the year. According to the report, the headline seasonally adjusted IHS Markit/CIPS Flash UK Composite Output Index came in at 40.6 in January 2021, down sharply from 50.4 in December 2020 and well below the 50.0 threshold that indicates growth. The indicator was the lowest since May 2020 and below economists' forecasts of 45.5. Nonetheless, the speed of the downturn in the private sector output was softer than at the start of the pandemic (13.8 in April).

Meanwhile, the data released by the Office for National Statistics (ONS), revealed the UK's retail sales rose 0.3 percent m-o-m in December, following a 4.1 percent y/y drop in November. The pace of growth, however, was much slower than the economists' forecast of +1.2 percent y/y. In y-o-y terms, retail sales growth accelerated to 2.9 percent in December from 2.1 percent in November. Economists had expected a 4 percent y-o-y jump in retail sales for December.