**GBP/USD Weekly Forecast: UK Growth Fears Ignite Cut Odds**
*By Yohay Elam – Originally published on Forex Crunch. This article is an expanded adaptation of Elam’s analysis.*
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The British pound (GBP) endured a challenging week against the US dollar (USD), retreating from early gains as domestic growth anxieties overshadowed monetary policy signals. With mounting evidence of stagnation or even contraction in the UK economy and strengthening expectations for Bank of England (BoE) rate cuts, GBP/USD faces rising headwinds. In this extended analysis, we break down the key drivers affecting GBP/USD, examine critical economic data, and discuss the technical outlook for the week ahead.
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## UK Economy: Growth Fears Mount
The narrative for sterling took a sharp turn as the latest economic releases painted a gloomy picture for the UK’s economic health.
### Weak GDP Data
– **Monthly GDP figures:** The UK’s GDP growth for May registered at a disappointing 0.0%, missing the consensus forecast of 0.2%. This stagnation follows a contraction in April, suggesting the economy is struggling to gain momentum.
– **Sectoral breakdown:** Services, the backbone of the UK economy, flatlined. Production and construction output surprised to the upside, but not enough to offset broader weakness.
– **Three-month average:** The rolling three-month GDP increased by a mere 0.2%, reinforcing concerns about underlying stagnation.
### Other Data Highlights
– **Industrial and Manufacturing Production:** Both these industrial barometers outperformed expectations slightly, but their contribution is small compared to the weight of services.
– **Trade data:** The trade deficit narrowed, a small bright spot, but external demand alone will not rescue the UK from sluggish domestic activity.
– **Labour market pressures:** While pay growth remains resilient, unemployment has ticked up, signalling softness in hiring amidst uncertain prospects.
### Political and Fiscal Uncertainty
– **General Election aftermath:** The Labour Party’s sweeping victory calmed market fears of instability but opened questions about future fiscal policy and growth strategy.
– **Budget outlook:** Markets are waiting for signals on potential fiscal expansion, with new spending plans possibly in the autumn. Investors are cautious, aware that fiscal easing could provide stimulus—but also bring inflation risks.
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## Bank of England: Rate Cut Bets Escalate
The Bank of England has signalled a cautious stance amid the global disinflation trend, but the tone is shifting as growth data deteriorates.
### Market Pricing
– **August BoE meeting:** Money markets have sharply increased bets for a rate cut at the BoE’s next meeting, with probabilities rising above 60% in light of the latest GDP miss.
– **Policy dilemma:** While services inflation remains sticky, the real risk now appears to be over-tightening and stifling already weak growth.
### Official Commentary
– **Governor Andrew Bailey:** Recently maintained a data-dependant approach, noting that persistent services inflation is “concerning” but acknowledging downside economic risks.
– **MPC member remarks:** Several committee members have signalled openness to cutting rates if growth and jobs confirm a deteriorating trend.
### Comparison to Peers
– **ECB and Fed:** Both the European Central Bank and US Federal Reserve appear comfortable with a slow, cautious approach to easing. The BoE seems likely now to lead the pack in cutting rates, which could weigh on GBP.
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## US Dynamics: Dollar Remains Resilient
While UK-specific woes dominate the GBP/USD charts, the US dollar has found support from steady economic data and less dovish Federal Reserve commentary.
### Fed Policy Outlook
– **June CPI and PPI:** US inflation metrics have softened, but not enough to force the Fed’s hand for an imminent cut. Market hopes for a September move remain, but data dependency rules.
– **Employment data:** Nonfarm payrolls and jobless claims suggest the US labour market is losing heat but not in trouble. The Fed maintains its
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