The pound has fallen against the US dollar after the release of disappointing UK data. While domestic data will continue to influence the British currency this week, the key events will be the monetary policies from the Fed and the Bank of England on Wednesday and Thursday, respectively.
Among other news, on Monday, UK Foreign Secretary Lizz Truss, will deliver a statement on the Northern Ireland (NI) Protocol in the House of Commons. The CBI has warned the government that its intention to override the Northern Ireland protocol has forced companies to consider whether to invest in Britain and is slowing down the economy.
Weak UK data
According to the Office for National Statistics (ONS) report released on Monday, the Gross Domestic Product (GDP) has slipped to -0.3% against the market expectation of 0.2%. Also, the annual Manufacturing Production figure has fallen to 0.5 vs. 1.8% expected. Industrial Production data has risen to 0.7% from the estimates of 0.5% on annual basis.
Poor UK GDP
The GBP/USD currency pair dropped after the negative UK April GDP number. On the news about the contraction of the UK economy, Finance Minister Rishi Sunak said that other countries were facing similar issues: “Countries around the world are seeing slowing growth, and the UK is not immune from these challenges.” He reassured people that “we’re fully focused on growing the economy to address the cost of living in the longer term, while supporting families and businesses with the immediate pressures they’re facing.”
UK economy shrank by 0.3% in April
GDP fell by 0.3% in April, with services, production and construction all decreasing in April. The reduction in NHS Test and Trace activity has impacted negatively on the economy, while factories suffered with supply chain issues. The ONS explained: “Services fell by 0.3% in April 2022 and these were the main contributors to April’s fall in GDP, reflecting a large decrease (5.6%) in human health and social work, where there was a significant reduction in NHS Test and Trace activity. Production fell by 0.6% in April 2022, driven by a fall in manufacturing of 1.0% on the month, as businesses continue to report the impact of price increases and supply chain shortages. Construction also fell by 0.4% in April 2022, following strong growth in March 2022 when there was significant repair and maintenance activity following the storms experienced in the latter half of February 2022.”
The UK economy is now only 0.9% larger than two years before the first Covid-19 lockdown in spring 2020.
What the economists said about April’s contraction
Paul Dales of Capital Economics has said that the 0.3% m/m fall in real GDP in April might not have been as weak as it looks, but it will increase the chance of the economy slipping into a recession. KPMG has also warned that the fall in output will continue and could put the economy on the brink of recession. Yael Selfin, chief economist at KPMG UK, said: “The overall outlook remains downbeat as the squeeze on consumer income is expected to weaken demand, and external headwinds intensify due to the deteriorating outlook among the UK’s main trading partners. The rest of Q2 could see an additional fall in GDP owing to the weakening momentum and the impact of the extended bank holiday.”
Bank of England Thursday announcement
The Bank of England will announce its monetary policy on Thursday and markets expect the Central Bank to raise interest rates further as rising prices put more pressure on the UK economy. Rising oil and commodity prices have pushed inflation to a 40-year high of 9%. Inflation is anticipated to continue to rise and reach a two-digit figure.
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