**GBP/USD Weekly Forecast: UK Growth Fears Ignite Cut Odds**
*Adapted from the original article by Yohay Elam, Forex Crunch*
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### Overview
The British Pound (GBP) suffered a challenging week against the US Dollar (USD), as GBP/USD retreated from previous highs to trade near the 1.27 mark. The primary driver behind the pair’s downturn was increasingly vocal fears about the stalling UK economy, which in turn fueled expectations that the Bank of England (BoE) could soon cut interest rates. This article provides a comprehensive outlook on the key factors influencing GBP/USD, assesses recent economic data, and forecasts potential directions for the pair in the upcoming week.
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### GBP/USD’s Tumble: Key Drivers
Throughout the week, several economic and political developments weighed on the GBP/USD exchange rate:
– **Weak UK Economic Indicators:** Recent releases have reignited worries regarding the UK’s fragile growth prospects.
– **Central Bank Rhetoric:** Swaps pricing now suggests the BoE could move sooner on rate cuts, following dovish tones from policymakers.
– **US Dollar Resilience:** The USD remained broadly supported due to safe haven flows and mixed, but relatively firm, US economic performance.
– **Politics and Brexit Shadows:** The UK’s political landscape remains volatile, with structural Brexit impacts lingering in the background.
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### UK Economic Data Recap
#### GDP Misses Expectations
A major blow for Sterling came from the latest monthly Gross Domestic Product (GDP) data. The UK economy expanded just **0.1% month-over-month** in April, failing to match consensus forecasts of 0.2%. Notably:
– **Production output declined by 0.9%.**
– **Construction output fell 1.9%,** its largest drop since January.
– **Services sector posted only modest growth (+0.2%).**
This weak print follows a lackluster first quarter, during which the UK exited a technical recession but only eked out a paltry 0.7% annualized growth rate.
#### Other Data Highlights
– **Trade Balance:** The UK registered a larger than expected goods trade deficit.
– **Industrial Production:** Output disappointed, particularly in pharmaceuticals, chemicals, and machinery sectors.
– **PMI Surveys:** The latest S&P Global/CIPS PMI remained above 50 (expansionary territory) for both manufacturing and services, but forward-looking indicators pointed to mounting cost pressures and weak demand.
#### Labor Market and Inflation Watch
– **Jobless Claims data:** Showed a slight uptick in unemployment benefit claims, adding to growth concerns.
– **Average earnings:** Wage growth remains robust, offering the BoE some inflationary cover, but softer momentum is anticipated.
– **CPI Inflation:** The next major release is critical; subdued readings would reinforce rate-cut theories.
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### Bank of England Rate Cut Bets Surge
The weak data forced economists and traders to reassess the BoE’s next policy move.
– **Money markets now price in a 70%+ chance of an August rate cut**—up from ~50% earlier in the month.
– **Policymaker commentary:** Deput Governor Dave Ramsden signaled dovishness, suggesting the MPC’s collective focus has shifted toward supporting growth and mitigating recession risks.
– **Rate path expectations:** Consensus currently sees one or two rate cuts by year-end, with the balance of risk tilted toward cuts occurring sooner.
#### Dovish Tilt: Supporting Arguments
– **Subdued economic growth and shrinking activity in key sectors.**
– **Inflation expected to fall near or even below the BoE’s 2% target.**
– **Less pressure from wage growth as labor market cools.**
– **Rising cost-of-living concerns and household financial stress.**
#### Risks to the Dovish Scenario
– **Sticky inflation or rebound in energy prices.**
– **Persistent wage pressures due to structural labor shortages.**
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