Samuel Indyk
LONDON (Reuters) – The pound rose on Wednesday even as data showed economic growth stalled early in the second quarter, as analysts looked beyond one-off factors and still expected the economic recovery to gain momentum in coming months.
Britain’s economic growth in April was unchanged from the previous month, weighed in part by the impact of heavy rain on activity during the month, according to the Office for National Statistics.
“The picture of a broad-based recovery from last year’s minor recession remains unchanged, with only the rain-battered construction sector failing to grow for three months, compared with three months in April,” said Rob Wood, chief UK economist at Pantheon Macro Economics. .
The pound was last up 0.1% against the dollar at $1.2754.
Sterling also gained slightly against the weaker euro, rising to 84.28 pence per euro. On Tuesday it hit its highest level since August 2022 at 84.185 pence.
The decision to call elections in France led to the pound’s gains against the single currency this week rather than the growth figures, Danske Bank currency analyst Kirstine Kundby-Nielsen said.
“Inflation data is a much more important input for the Bank of England,” Kundby-Nielsen added.
Markets estimate the likelihood of the Bank of England cutting interest rates at around 70% by its September meeting, compared with forecasts for a rate cut of around 35 basis points this year.
“Given the persistence of inflation both domestically and globally, as well as political uncertainty in France, we see potential for inflation to decline in the short term,” Kundby-Nielsen said.
The US will be the main driver of currency markets in the near future, with inflation data and a statement from the Federal Reserve due later on Wednesday.
“Due to continued upward pressure on prices from services, our experts believe that no easing is in sight, especially in the base rate,” said Antje Praefke, FX analyst at Commerzbank (ETR:), in a note.
“This is likely to bolster expectations that the Fed will not cut its key interest rate until the end of the year at the earliest.”