The UK GDP showing disappointing results. This indicate that the UK economy is plummeting and causing GBP/USD to fall.
Today's release of the United Kingdom's Gross Domestic Product (GDP) data confirmed a more severe economic slowdown than expected by various parties. As a result, GBP/USD continues to slump within the range below the 1.2500 level.
The GDP report shows a -0.5% (month-over-month) economic contraction in the UK for July 2023. Consequently, the annual economic growth is recorded at 0.0%. However, the previous consensus had only anticipated a monthly setback of -0.2% and an annual growth of 0.4%.
Some other economic data for the UK are also quite bleak. Industrial output registered -0.7% in July 2023, despite having grown by 1.8% in the previous period. Similarly, construction output fell to -0.5%, and manufacturing output plummeted to -0.8%.
The various data support the expectation that the Bank of England (BoE) will soon end its interest rate hike cycle to avoid a sharper economic slowdown. The market anticipates that the BoE will only raise interest rates one more time at the upcoming meeting on September 21 or may even refrain from raising interest rates further.
Mathias Van der Jeugt, an analyst at KBC Markets, stated that the data reinforces the expectation of stagflation in the United Kingdom, with the BoE expected to move toward a more dovish stance shortly.
Some analysts argue that the economic downturn in the UK is only temporary. The decline in the services sector reflected in this report is primarily due to strikes by healthcare workers and educators, so it is not expected to carry over into the next period. However, the erratic performance across sectors complicates efforts to predict future economic conditions.
GBP/USD attempted to inch higher as it entered the New York session, specifically after the release of US inflation data, which was not significantly different from market expectations.