UK GDP, GBP/USD Analysis

UK GDP for Q2 expanded as expected but June reveals stagnant growthGrowth trends reveal optimism as the UK enters the rate cutting cycleSterling’s pullback reaches a point of reflection

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UK GDP for the Second Quarter as Expected – June Reveals Stagnant Growth

The first look at economic growth in the UK for Q2 printed as expected at 0.6%, quarter on quarter. UK growth has struggled throughout the rate hiking cycle but has shown more recent signs of recovery in the lead up to this month’s Bank of England (BoE) meeting where the monetary policy committee voted to lower interest rates for the first time since March 2022.

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A stronger showing in Q1 (0.7%) is followed by a similar 0.6% expansion in Q2 according to the preliminary estimate. GDP data is subject to numerous revisions as more data becomes available, meaning the number may change but for now, the economy is showing signs of promise. A better gauge of growth trends, the 3-month average ending in June, proves growth has lifted off stagnant, and even negative, levels. It isn’t all good news as June was a month of stagnant growth (0%) when compared to May as declines in the services sector were offset by strong manufacturing output.

UK GDP 3-Month Average

Sterling’s Pullback Reaches a Point of Reflection

GBP/USD has partially recovered after the major selloff in July, with bulls looking for a bounce off trendline support in search of another leg higher. Yesterday’s UK inflation data told a mixed story as inflation in July rose by less than expected. The fact that we’d see a higher print has been well-telegraphed by the bank of England after forecasts revealed inflation would remain above the 2% target for a long time after hitting the significant marker. However, inflation is not expected to spiral out of control but potential surprises to the upside may help keep sterling buoyed - especially at a time when the prospect of a potential 50 basis point cut from the Fed remains a real possibility. Front loading the cutting cycle could weigh heavily on the dollar, to the benefit of GBP/USD.

GBP/USD has risen after bouncing off the 200-day simple moving average (SMA) around the former level of support at 1.2685 (May and June 2024). Since then the pair has burst through trendline support, former resistance. Bulls will be looking for the pair to respect the test of support with 1.3000 in sight. Support is clustered around the zone comprising of 1.2800, trendline support, and the 50 SMA.

GBP/USD Daily Chart

GBP/USD Mixed Data provided by of clients are net long. of clients are net short.