**FxWirePro: GBP/USD Slides to Two-Month Low as Weak UK GDP Data Fuels Rate Cut Bets**
*Credit: EconoTimes/FxWirePro*
The British pound tumbled to a two-month low against the U.S. dollar on Monday, extending its recent losing run, as disappointing UK GDP data increased speculation that the Bank of England may be forced to cut rates sooner than previously expected. At the time of writing, GBP/USD was trading around 1.2380, its weakest level since late April, after UK economic growth figures came in below market estimates and renewed concerns over the country’s fragile economic outlook.
This article analyzes the market reaction to the latest GDP print, the shifting expectations for monetary policy, technical outlook, and potential market scenarios for GBP/USD in the weeks ahead.
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## Weak UK GDP Raises Economic Concerns
The Office for National Statistics (ONS) reported that UK gross domestic product edged up by only 0.1% in April month-on-month, down from March’s 0.4% and undershooting the consensus forecast of a 0.2% rebound.
– **Key data highlights:**
– GDP growth, April (MoM): 0.1% (vs. forecast 0.2%)
– GDP growth, three months to April: 0.7% (stronger than expected)
– Services sector stagnated, with 0.0% growth, while industrial production and construction both contracted.
This lackluster GDP performance, especially in key consumer-facing sectors, amplified existing fears that the UK economy is struggling to sustain momentum after emerging from recession in the first quarter of the year.
### Sectoral Breakdown
– **Services:** Flat performance, dragged by a falloff in retail and wholesale trade.
– **Industrial Production:** Fell 0.9% month-on-month, with broad-based declines in manufacturing.
– **Construction Output:** Slipped 1.4%, extending a recent run of negative data, as higher interest rates weighed on activity.
Taken together, the data paints a picture of a sluggish recovery, dampening hopes of a significant economic bounce as the country heads towards a general election.
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## Rate Cut Bets Build Amid Slowdown Fears
Before the release of the GDP data, investors were already jittery about the pound due to ongoing uncertainty over the BoE’s next policy steps. The weak economic figures delivered a fresh blow, with money markets now pricing in a higher probability of rate reductions by the UK central bank as soon as September.
– **BoE’s current policy stance:**
– Bank Rate: 5.25% (16-year high)
– Previous communications have emphasized the need for further evidence that inflation pressures are cooling.
– Inflation has eased from double digits to 2.3% in May but remains above the BoE’s 2% target.
– **Market expectations post-GDP:**
– Swaps indicate a ~60% chance of a 25bps cut by September 2024, up from 50% before the data.
– Two cuts by year-end are now seen as plausible.
– Some analysts even see risks of an earlier move if growth falters further.
### Factors Behind Rate Cut Speculation
– **Weak activity data:** April’s poor GDP follows a series of negative surprises in PMIs, retail sales, and consumer confidence.
– **Cooling inflation:** While services inflation remains sticky, headline price growth is now just above the BoE’s goal.
– **Global context:** Other central banks (ECB, BoC) have already begun easing, increasing pressure on the BoE to follow suit.
– **Political uncertainty:** July’s snap general election adds another layer of unpredictability for markets.
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## GBP/USD Sinks to Two-Month Lows
The pound’s reaction to the GDP miss was swift and severe. GBP/USD dropped more than half a percent intraday, breaking below
Read more on GBP/USD trading.