Britain’s economy is proving harder to knock off course than some had feared. Despite the start of the Iran-USA conflict, Gross Domestic Product (GDP) grew by 0.4% in the second quarter of the year. Economic growth came from households and businesses rather than government spending. Services did much of the heavy lifting and June itself delivered the strongest finish to the period, with monthly growth of 0.3% far exceeding expectations.
Sterling’s reaction was fairly restrained, however. The pound held close to recent highs against the US dollar and remained steady against the euro, leaving it on course for another positive week. The market still expects the Bank of England to raise interest rates once more this year, but not yet. Thursday’s figures were not enough to dramatically alter that view.
In America, wholesale inflation was less than expected in July, extending the run of data suggesting price pressures may be cooling beneath the surface. That gave the Federal Reserve a little more room to wait before deciding its next move.
Friday now shifts attention away from Britain. Euro-area growth and trade numbers arrive today in the morning, followed later by American retail sales and consumer confidence. After a week dominated by inflation, energy and growth, those figures should help decide whether the pound can finish the week on the front foot.
In business news, the return of more office workers to offices has meant a return to profit for the company behind Canary Wharf in East London, which made £176mn profit in the first half of the year.
Arguments continue over plans to restrict zero hours contracts. Business organisations, especially in retail and hospitality, claim it will cost them up to £3bn in extra costs. The government accepts this and is consulting on the proposals, while continuing to support what it says are wider benefits of the scheme to the economy.
GBP: Inflation the test next week
It’s looking like a slow end to a generally positive week for sterling. It’s gained on most currency pairs overall, including around a quarter of a cent on the euro and US dollar. After GDP this week we are back on the high-level data next week, starting with unemployment and earnings on Tuesday and the all-important inflation rate on Wednesday. For now, the pound is being supported by an economy that has proved more resilient than feared and by expectations that the Bank of England may yet need to raise interest rates.GBP/USD: the past year
EUR: Euro waits for its own growth check
A bit of a mixed week for the single currency, with losses against the commodity-backed currencies such as the Canadian and Australian dollars, and the pound (which is emphatically not backed by commodities). Attention now turns to today’s euro-area GDP, employment and trade figures. They should offer a clearer picture of whether the bloc’s economy is coping with the same energy shock that Britain has so far managed to weather.GBP/EUR: the past year
USD: Softer prices cut dollar’s appeal
The dollar had another inflation report to digest yesterday. US producer prices were unchanged over the month, coming in below forecasts, while the annual pace of wholesale inflation slowed. While inflation remains well above comfortable levels at 3.4%, the US Federal Reserve is also tasked with maximising employment and with last week’s dire Non-Farm Payrolls still fresh in the memory the latest data is pointing well away from any imminent interest rate rise. Retail sales are next. Friday’s figures will show whether American consumers are still spending freely after months of high prices and a softer jobs market.USD/GBP: the past year
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