Friday’s GDP release saw UK growth yield an underwhelming 0.1% despite an expected 0.3%, which is in line with the slowest economic growth in more than 5 years. This led to a disappointing end to the week for Sterling, with its value dropping against all major currencies.
The table below shows the market movements for a number of GBP currency pairings in the last week:
|Currency Pair||% Change||Difference on £200,000|
Despite the ‘Beast of the East’s’ impact on retail and construction industry making the headlines, the Office of National Statistics (ONS) has said that the extreme weather has had a “relatively small” impact on growth, arguing that the bad weather in the UK boosted energy supply and online sales.
The ONS suggested the main factor that was contributing to the poor performance was the significant pressure on the construction sector.
The constrution sector accounts for approximately 7% of total UK GDP and which has seen a decline of 3.3% against the performance of the previous quarter, with the poorest data recorded at the start of the year around the time of the collapse of the construction and facilities management company, Carilion.
The GBP/EUR exchange rate is still up at the highest rates since May last year.
In light of the poor GDP outcome, the unconvincing industry performance data and the drop in inflation to its lowest level in almost over a year, the chances of an interest rate hike in a couple of weeks seems to be diminishing and it would be more likely that Bank of England (BoE) will adopt a ‘wait and see approach’, examining the data releases in the coming months for a review again in August.
Despite all of this, the GBP/EUR exchange rate is still up at the highest rates since May last year and Thursday’s debate surrounding the Customs Union, where MP’s passed a non-binding motion saying the UK should remain part, surely provides some confidence in Sterling.
Following last week’s key economic data, there are PMI (Purchasing Manager’s Index) releases for both manufacturing and construction this week which are both expected to show slight signs of growth, although these figures could be overshadowed with news of the Home Secretary, Amber Rudd’s resignation this morning.
I personally don’t expect any major movement in the short term, with rates likely to remain between what appears to be new buoyancy levels of 1.15 and 1.12.
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