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The UK economy has shown a strong recovery in early 2024
After a busy day for the markets, sterling ended yesterday’s evening session slightly up on the US dollar but ultimately going nowhere against the euro despite all the noise.
However, this morning the pound has edged upwards on the news that the British economy as measured by Gross Domestic Product (GDP) grew by 0.6% in the first quarter of the year. This was considerably better than the markets had expected and marks an exit from the technical definition of a recession in the second half of 2023.
Nevertheless, so far this morning sterling’s gains have been modest, at around 0.1% against the euro and US dollar.
Looking back to yesterday, the Bank of England’s Monetary Policy Committee (MPC) voted to keep interest rates on hold at 5.25%. This came as no surprise. The real question is about whether rates will come down next month. With the MPC still voting 7-2 to hold rates, this is not a done deal. As the governor of the Bank of England Andrew Bailey said yesterday, it is “not a fait accompli”.
Today’s news on GDP perhaps puts next month’s assumed interest rate decrease further in doubt. So, good news for the economy but less welcome for anyone hoping for relief from high mortgage rates and other borrowing costs.
The Office for National Statistics (ONS) reported that growth in GDP came primarily from the services and production sectors, which grew by 0.7% and 0.8% respectively, while construction fell by 0.9%.
The Chancellor of the Exchequer Jeremy Hunt said the news was proof that: “the economy is returning to full health for the first time since the pandemic.” The UK is nevertheless still on course to be the slowest growing G7 economy.
Elsewhere in the business news, a report that the end of VAT relief for tourists in 2021 has driven luxury shoppers away from the UK. Global Blue reports that tens of thousands of shoppers with an average spend of €3,800 have switched to countries such as France and Italy.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Pound can’t shake off mid-week drop
Sterling reaches the end of the week where it started against USD but 0.5% down against EUR.
The high-level data continues next week, with unemployment and earnings on Tuesday. Watch out, too, for comments from Bank of England rate setters. The Bank’s chief economist Huw Pill will be speaking later today.
GBP/USD past year
EUR: Small moves for single currency
It was a broadly positive day for the single currency yesterday, strengthening against the yen and US dollar and ending slightly up on sterling. Several European Central Bank rate setters will be talking today.
Next week starts fairly quietly, although there will be the ZEW Economic Sentiment Index on Tuesday. Last month Germany showed the best sentiment for over two years, but will that continue?
EUR/USD past year
USD: Dollar drops
It was all downhill for the US dollar yesterday, slipping by between a quarter and a third of a percent against major rivals.
There will be a preliminary result for Michigan Consumer Sentiment this afternoon, and on Monday there are consumer inflation expectations to consider. The main events, however, will be the major inflation readings, coming out on Tuesday and Wednesday. It’s not just household budgets or even interest rates at stake, but also the presidential election now just six months away.
USD/GBP past year
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