GBP Drops on Stalling UK Growth
On Thursday, the British pound lost ground and GBP/USD traded at about 1.2760, down 0.29% for the day in the North American session.
In April, the UK economy did not grow, which was as expected but lower than the March reading of 0.4% m/m. That was the weakest reading in 4 months, as construction and manufacturing dropped, offsetting the increase in services.
In April, GDP rose 0.6% yearly, down from May’s 0.7% and as per expectations. Rain showers in April dampened consumer spending as the UK economy is still struggling.
With a national election set to take place on July 4, politicians will be monitoring and using every economic release. The ruling Conservatives are trailing in the polls by far and the weak GDP may be another nail in the coffin for the party.
Although the Bank of England will meet next week, there is not much chance of a rate cut in the middle of election campaigns. The markets are expecting an initial rate cut in Sept., although a cut in August is possible when the BoE will release quarterly forecasts for inflation and growth.
The advantage of waiting until Sept. is that the Fed may cut at its meeting in September. If this happens, a BoE cut wouldn’t have as big a negative impact on the British currency.