British Pound: Solid UK data, limited BoE impact – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes GBP/USD trading directionless near 1.3500 as United Kingdom (UK) Q2 and June Gross Domestic Product (GDP) data show encouraging activity. Growth was driven by investment and consumption, with government spending a drag. Monthly GDP beat expectations, but Haddad judges these prints unlikely to shift Bank of England rate expectations, with July CPI seen as more important for policy.

Encouraging growth, focus on inflation

"GBP/USD is directionless around 1.3500. UK economic activity was encouraging over Q2 and in June."

"Real GDP rose 0.4% q/q vs. 0.6% in Q1, in line with consensus and marginally above than the Bank of England’s (BOE) 0.3% q/q forecast."

"The details point to respectable domestic demand activity as Q2 growth was mainly driven by gross fixed capital formation (+0.24ppt) and household consumption (+0.16ppt). Government spending was the biggest drag to growth in Q2 (-0.06ppt) reflecting declines in health and education."

"In parallel, monthly real GDP beat expectations. Real GDP unexpectedly increased 0.3% m/m in June (consensus: -0.1%) vs. 0.0% in May entirely driven by a 0.4% m/m rise in services output."

"Bottom line: the UK GDP prints are unlikely to shift the dial on BOE rate expectations. The UK inflation backdrop is a bigger concern for the BOE with the July CPI report due next week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)