Home GBP Drops as UK GDP Lowers Odds of Rate Hike

GBP Drops as UK GDP Lowers Odds of Rate Hike

Posted by on September 29th, 2017.

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The Pound is tumbling against most the majors today thanks to a poor UK growth report.

So far, Sterling has lost 0.6% against the euro, over 0.4% against the US, New Zealand and Canadian Dollars and 0.3% against the Australian Dollar – and the potential ramifications of the data mean Sterling could be on track for further losses.

Second quarter UK GDP was initially estimated to come in at 0.3% on the quarter and 1.7% on the year, but the annual figure has now been revised to just 1.5%.

Given that this is the lowest rate of growth recorded since 2013, it could dash recently raised hopes of a near-term rate hike from the Bank of England (BoE).

According to Office for National Statistics (ONS) Head of GDP Darren Morgan; ‘There was a notable slowdown in growth in the first half of 2017. The often buoyant services sector was the only area to grow in the second quarter, mainly due to increases in computer programming and retail.

Household spending growth continued to slow in the second quarter. However, revised figures show business investment grew more strongly than previously estimated. Meanwhile, the UK’s deficit with the rest of the world was little changed in the second quarter.’

Although BoE policymakers have been indicating that last year’s interest rate cut will be reversed in the near future, it would be highly unusual for the central bank to increase interest rates in the face of such weak economic output.

IHS Markit Chief Economist Chris Williamson noted; ‘From a recent historical perspective, since the Bank of England’s independence, it would be unprecedented for the central bank to tighten policy with the data pointing to such anaemic economic growth.’

As Sterling’s recent run of gains (which took GBP to a 10-week high against the Euro and 14-month high against the US Dollar) were built on the back of expectations that borrowing costs are set to increase in the not-too-distant future, this development could see the Pound retrace its steps over the next few weeks.


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