Sterling up after UK economy tops forecasts, exits recession

Sterling rises after UK economy beats Q1 expectations

Pound sterling rose on Friday following the release of data indicating the UK economy surpassed expectations in the first quarter, recording a 0.6% growth and emerging from a mild recession experienced in 2023.

Sterling increased by 0.1% to $1.2537, up from $1.2516 prior to the data announcement. Although the pound has seen a slight rise this May, it has declined by 1.5% year-to-date due to the strengthening U.S. dollar driven by robust economic performance in the United States.

According to the Office for National Statistics, the UK's GDP growth for the January-March quarter was notably higher than the anticipated 0.4%, as forecasted by a Reuters poll of economists.

Henry Cook, senior economist at lender MUFG, told Reuters:  

"The UK economy started the year with a bang. Recession is firmly in the rear-view mirror."

Against sterling, the euro weakened by 0.1% to 86.04 pence.

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Bank of England stands pat on rates, signals summer cut

The Bank of England kept interest rates unchanged at a 16-year peak of 5.25% on Thursday, but noted that inflation was moving in the right direction. A second member of the Monetary Policy Committee voted in favour of a rate cut, suggesting that the Bank may move towards a potential reduction in borrowing costs in the second or third quarters.

Inflation slowed to 3.2% in March, down from a high of 11.1% in October 2022, with new data expected on May 22.  

MUFG’s Cook added:

"Today's figures may give the BoE some pause for thought, but the focus will remain on key upcoming data on inflation and wage growth. Provided that these data points move in the right direction, today's good news on economic activity in isolation is unlikely to derail initial monetary easing”.

Sterling also saw a 0.2% rise on Thursday after U.S. data revealed an unexpected increase in weekly jobless claims, hinting at a potential weakening in the labour market and a possible rate cut by the Federal Reserve later this year.

Despite these movements, the U.S. dollar has advanced approximately 3.9% in 2024, buoyed by strong economic growth. The dollar index, which measures the strength of the greenback against a basket of six major currencies, remained steady at 105.23

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.  

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.