The British pound ended last week down more than 2 percent as UK GDP unexpectedly stagnated during Q2 and led the annualized rate of growth to slow to a 16-year low of 1.4 percent. UK expansion was plagued by a host of factors, and while the Bank of England has made a point of discussing their concerns about the upside risks to inflation and intent to maintain price stability, it’s worth wondering how long the central bank is willing to stand aside as the economy falters.
British Pound’s Prospects Remain Weak
Fundamental Outlook for British Pound: Bearish
- Bank of England meeting minutes reveal 7-1-1 vote in August
- UK retail sales surged, but even the BOE doesn’t buy it
- UK GDP stagnated in Q2, adding to recession fears
The British pound ended last week down more than 2 percent as UK GDP unexpectedly stagnated during Q2 and led the annualized rate of growth to slow to a 16-year low of 1.4 percent. UK expansion was plagued by a host of factors, and while the Bank of England has made a point of discussing their concerns about the upside risks to inflation and intent to maintain price stability, it’s worth wondering how long the central bank is willing to stand aside as the economy falters.
The markets are betting that it won’t last for much longer, as Credit Suisse overnight index swaps continue to price in over 50bps worth of rate cuts within the next 12 months. Looking ahead to this week, the economic data scheduled to be released isn’t likely to sway the markets into thinking otherwise. Furthermore, according to our Senior Strategist’s Elliott Wave analysis, GBP/USD could be nearing a bottom, but it may have further to fall first. On Thursday, CBI distributive trades is forecasted to show a mild improvement in orders while consumer confidence should worsen. The former report could hold a bit more weight than usual with the markets, as the Bank of England has recently stated that they were looking at survey data more closely given the volatility that tends to occur in the official statistics. Overall though, the economic is not good for the UK economy and thus, the British pound. – TB
