After a busy day for the markets, sterling ended yesterday’s evening session slightly up on the US dollar but ultimately going nowhere against the euro despite all the noise.
However, this morning the pound has edged upwards on the news that the British economy as measured by Gross Domestic Product (GDP) grew by 0.6% in the first quarter of the year. This was considerably better than the markets had expected and marks an exit from the technical definition of a recession in the second half of 2023.
Nevertheless, so far this morning sterling’s gains have been modest, at around 0.1% against the euro and US dollar.
Looking back to yesterday, the Bank of England’s Monetary Policy Committee (MPC) voted to keep interest rates on hold at 5.25%. This came as no surprise. The real question is about whether rates will come down next month. With the MPC still voting 7-2 to hold rates, this is not a done deal. As the governor of the Bank of England Andrew Bailey said yesterday, it is “not a fait accompli”.
Today’s news on GDP perhaps puts next month’s assumed interest rate decrease further in doubt. So, good news for the economy but less welcome for anyone hoping for relief from high mortgage rates and other borrowing costs.
The Office for National Statistics (ONS) reported that growth in GDP came primarily from the services and production sectors, which grew by 0.7% and 0.8% respectively, while construction fell by 0.9%.
The Chancellor of the Exchequer Jeremy Hunt said the news was proof that: “the economy is returning to full health for the first time since the pandemic.” The UK is nevertheless still on course to be the slowest growing G7 economy.
Elsewhere in the business news, a report that the end of VAT relief for tourists in 2021 has driven luxury shoppers away from the UK. Global Blue reports that tens of thousands of shoppers with an average spend of €3,800 have switched to countries such as France and Italy.
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