UK economy shows 0.2% expansion in the three months to June
|- Quarterly GDP for the UK came in at 0.2% in Q2 vs. 0% expected.
- UK GDP arrived at 0.5% MoM in June vs. 0.2% expected.
- GBP/USD recaptures 1.2700 on upbeat UK GDP data.
The UK economy grew 0.2% QoQ in the three months to June, compared with a 0.1% expansion booked in the first quarter of 2023. The market consensus was for no growth in the reported period.
Annually, the UK GDP expanded 0.4% in Q2 vs. 0.2% expected and a 0.2% increase seen in the previous quarter.
The UK GDP increased 0.5% MoM in June vs. 0.2% expected and -0.1% previous.
Meanwhile, the Index of services (June) arrived at 0.1% 3M/3M and 0% prior and 0% estimated.
Commenting on the UK GDP report, the country’s Finance Minister Jeremy Hunt said, “we're laying strong foundations needed to grow economy.”
Additional quotes
“Actions we're taking to fight inflation are starting to take effect.”
“If we stick to our plan we will grow faster than Germany, France and Italy.”
Market reaction
GBP/USD extended its latest leg higher and recaptured the 1.2700 level on the release of the upbeat UK growth numbers. At the time of writing, the spot is 0.07% higher on the day at 1.2705.
Pound Sterling price today
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies today. Pound Sterling was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.11% | -0.29% | -0.06% | -0.24% | -0.07% | 0.03% | 0.04% | |
| EUR | 0.11% | -0.17% | 0.04% | -0.13% | 0.04% | 0.10% | 0.15% | |
| GBP | 0.28% | 0.17% | 0.21% | 0.08% | 0.22% | 0.29% | 0.32% | |
| CAD | 0.08% | -0.03% | -0.21% | -0.15% | 0.00% | 0.06% | 0.11% | |
| AUD | 0.24% | 0.06% | -0.11% | 0.12% | 0.10% | 0.21% | 0.22% | |
| JPY | 0.07% | -0.05% | -0.21% | 0.01% | -0.10% | 0.12% | 0.11% | |
| NZD | -0.04% | -0.13% | -0.29% | -0.09% | -0.25% | -0.08% | 0.03% | |
| CHF | -0.04% | -0.15% | -0.32% | -0.10% | -0.25% | -0.09% | -0.03% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Pound Sterling FAQs
What is the Pound Sterling?
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
How do the decisions of the Bank of England impact on the Pound Sterling?
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
How does economic data influence the value of the Pound?
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
How does the Trade Balance impact the Pound?
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
This section below was published at 02:00 GMT as a preview of the UK Gross Domestic Product (GDP) data.
- United Kingdom’s Gross Domestic Product is expected to show no growth in Q2 2023.
- Bank of England expects the UK GDP to expand by 0.5% this year.
- Pound Sterling could resume a downtrend on weak UK growth figures.
The United Kingdom’s Office of National Statistics (ONS) will publish the first release of the UK’s Gross Domestic Product (GDP) for the second quarter of the year on Friday, August 11, which is expected to remain stuck.
At its August policy meeting, the Bank of England (BoE) did not forecast a recession for the United Kingdom while raising rates by 25 basis points (bps) to 5.25%. The BoE’s non-committal stance on the future interest rate path disappointed Pound Sterling bulls.
Will the preliminary release of the UK second quarter Gross Domestic Product help reinforce buying interest around the Pound Sterling?
What to expect in the next UK GDP report?
The British economy grew minimally by 0.1% in the first quarter of this year matching the preliminary estimate. For the second quarter, the United Kingdom GDP is seen showing no growth on a quarterly basis. Annually, the UK economy is seen expanding 0.2% in Q1, at the same pace as seen in the previous quarter. Meanwhile, the June month GDP is expected to increase by 0.2%, having contracted 0.1% in May.
The central bank revised its economic growth forecasts last week, now predicting that the UK economy to post a modest growth of 0.1% in Q2 2023 against the June forecasts of no growth. The Bank expects the economy to expand 0.5% this year vs. a 0.25% expansion seen in the previous projections.
Speaking at the post-meeting press conference, BoE Governor Andrew Bailey said "economy is more resilient, I would not use words like 'pain' to describe policy impact." "We hope we can deliver the path we expect with no recession, we will have to see, Bailey added.
Meanwhile, the National Institute of Economic and Social Research (NIESR) said in its main forecast on Wednesday that the UK economy will avoid a recession in 2023 but there is still a "60 percent risk" of a recession at the end of 2024.
Last month, the International Monetary Fund (IMF) projected Britain's economy to grow 0.4% this year and 1.0% in 2024.
When will the UK Gross Domestic Product report be released and how could it affect GBP/USD?
The Office for National Statistics will publish the UK GDP data at 06:00 GMT on Friday, August 11. Heading toward the high-impact economic release from the United Kingdom, the market’s positioning shows that the BoE's key interest rate could peak below 5.70% by March, only a small change from expectations in the run-up to the August policy meeting but down from above 6.0% just a month ago.
The Pound Sterling (GBP) is struggling below the 1.2700 round level against the US Dollar, holding its corrective decline from 15-month highs of 1.3142 set last month. Increased bets for a Fed rate hike pause against more tightening expected from the BoE are helping keep the GBP/USD pair somewhat afloat.
A stronger-than-expected GDP print is likely to rekindle the hawkish BoE interest rate outlook, triggering a fresh upswing in the Pound Sterling. GBP/USD could resume its correction toward the previous week’s low of 1.2620 in case the data signals an incoming recession in the UK economy.
Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “The GBP/USD pair failed to find acceptance above the mildly bullish 50-Day Simple Moving Average (SMA) at 1.2764, as the 14-day Relative Strength Index (RSI) continues to hold ground below the midline. The UK GDP data holds the key for the near-term direction in the currency pair.”
Dhwani also outlines important technical levels to trade the GBP/USD pair: “On the downside, immediate support awaits at the August 3 low pf 1.2620, below which the upward-sloping 100-day SMA at 1.2606 will be tested. The additional decline will open floors toward the 1.2550 psychological level. Conversely, the pair needs to find a strong foothold above the 50-day SMA to initiate a fresh uptrend. The next relevant hurdle for Pound Sterling buyers is seen at the bearish 21-day SMA of 1.2837.”
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