**Title: UK GDP Grinds to a Halt; Pound Dips as Markets React**
*By Kenny Fisher, originally published on MarketPulse*
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The UK economy delivered a disappointing performance in its latest GDP report, as growth for April stagnated at 0%. This data, coming after a 0.4% expansion in March, has led to a subtle but clear weakening of the British pound amid concerns regarding the underlying health of the economy. With a critical period ahead that includes a Bank of England policy meeting and general elections, market participants are parsing the economic signals for clues on the pound’s trajectory and the central bank’s next move.
## UK GDP Stalls in April
The Office for National Statistics (ONS) reported that the UK’s gross domestic product was flat in April, underperforming against expectations that had anticipated limited, but positive, growth following March’s robust expansion. This sudden loss of momentum adds to the evidence suggesting that the UK recovery remains fragile.
– **Key data highlights:**
– UK GDP: 0.0% in April
– Prior month (March): revised up to 0.4% gain
– Services sector, responsible for about 80% of UK GDP, grew 0.2%
– Industrial production and construction output fell, dragging overall figures lower
### Sector Breakdown
Looking under the hood, the stagnant GDP figure masks diverging trends across sectors:
– **Services:** Continued to expand, albeit at a slower pace, helped by increases in professional and scientific activities.
– **Production:** Fell by 0.9%, with car manufacturing and energy output both notably lower.
– **Construction:** Dropped steeply by 1.4%, reversing previous gains and reflecting subdued housing and infrastructure investment.
The services sector’s resilience is notable, but its tepid growth was overshadowed by the outsized declines in manufacturing and construction.
## Pound Reacts Lower
The pound responded to the economic news by edging lower against both the US dollar and the euro. As investors digested the implications of the flat GDP report, the GBP/USD rate slipped toward 1.27, with the move extending recent pound underperformance. Against the euro, sterling also lost ground, fueling speculation that recent positive momentum in UK markets may be stalling.
**Market reaction included:**
– Selling pressure on the pound, particularly evident in early London trading.
– UK bond yields nudging lower as expectations for imminent Bank of England rate cuts regained traction.
The pound’s weakening comes after reaching one-month highs against the euro earlier in June, underscoring the renewed sense of caution following the economic data.
## Economic Backdrop: Recovery Losing Steam?
The Bank of England (BoE) and government policymakers have pointed to consecutive quarters of modest growth as evidence the UK has exited last year’s recession. However, the flat GDP in April provides an early warning that the recovery may not be as stable as hoped.
### Factors weighing on UK growth:
– **High interest rates:** The BoE’s benchmark rate remains at a 16-year high, tightening credit conditions for households and companies.
– **Persistent inflation:** While headline inflation has receded, core price pressure, especially in the services sector, remains sticky.
– **Global trade headwinds:** Slower demand from key trading partners, along with ongoing disruptions in global supply chains, continue to limit manufacturing growth.
– **Weak consumer sentiment:** Despite falling energy prices and a robust jobs market, wage growth remains patchy, and household spending is subdued.
Economic growth for 2024 is widely expected to remain sluggish, with most forecasts suggesting annual expansion will be limited to 0.5%-1%—well below the historic UK trend rate.
## Bank of England Under the Microscope
With the UK economy showing clear signs of fatigue, market participants are turning their focus to the Bank of England’s June policy meeting. Until now, policymakers have been reluctant to cut rates, citing ongoing inflation concerns,
Read more on GBP/USD trading.