UK Data Supports BoE Rate Hike, UK Politics Does Not
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GBPUSD Analysis and News
- UK GDP shows growth continues to pick
- Brexit Uncertainty amid political disarray weighs on Sterling
For a more in-depth analysis on Sterling, check out the Q3 Forecast for GBP/USD
UK Economy Picks up After Q1 Slowdown
The UK economy continued to pick up in May after the slowdown seen in Q1 amid the boost in service sector growth, while manufacturing and industrial activity data disappointed. Today saw the release of a new monthly reading for GDP, which will be looked at closely by the BoE as they decide on whether to raise the bank rate at next month’s policy meeting. ONS showed that the UK grew in line with expectations at 0.3% in May, marking a yearly reading of 1.5%, above consensus for 1.4%. However, despite the focus on the new GDP estimate, it was the weak manufacturing and industrial output data that prompted the selling in the Pound from 1.3295 to 1.3265 in an immediate reaction.
Economic Data Gives BoE Confidence to Raise Rates
Overall, the data suggests growth should pick up to 0.4%, as indicated by last week’s PMI data, which in turn implies that the weakness in Q1 had been temporary. Subsequently, this should give the Bank of England confidence to raise interest rates at August’s QIR.
Political Uncertainty is Biggest Catalyst for Sterling
As evidenced by yesterday’s price action, political uncertainty continues to be the biggest driver for the Pound in the short term. The resignation of Foreign Minister Boris Johnson led to a pullback in rate hike expectations for the BoE from 69% to 62% with a risk a no deal Brexit scenario increasingly likely, which is somewhat worrisome for the Bank of England who have based forecasts on a smooth Brexit transition. As such, any escalation of domestic politics involving a potential leadership contest for PM May could be enough to derail the BoE’s monetary policy path.
GBPUSD PRICE CHART: 1-MINUTE TIME FRAME (INTRADAY July 10, 2018)
--- Written by Justin McQueen, Market Analyst
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