Market report: pound stays muted despite GDP boost

GBP

The pound stayed muted yesterday despite UK GDP data coming in above expectations.

The domestic economy grew more than forecasted in June, with year-on-year second quarter growth coming in at 22.2%. It was expected to be 22.1%. This growth falls in line with recent expectations for a 2022 interest rate hike and is consistent with the recent Bank of England meeting where robust economic activity was predicted for 2021. This growth was attributed to a 4.5% jump in output in the health sector, linked to the marked increased in people visiting their GP. Nearly half of June’s 1% increase was driven by this surge.

The market price is now pricing in a fifteen basis point hike by June 2022, demonstrated by the UK equivalent of the dot-plot. However, this is contingent on the autumn and winter months when Coronavirus cases are expected to rise again and restrictions could be introduced. 

Whilst many investors are turning bullish, caution remains as the growth could be slowed by a new Covid outbreak and the unwinding of the furlough scheme. Trade data released yesterday also showed the volume of exports was still 21.5% below the 2019 Q4 level, reminding us Brexit is still having an impact on growth as well.

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