UK data today has continued the pressure on Sterling, with the UK economy rebounding less than expected in May. Overall GDP lifted 1.8% m/m, compared to Bloomberg consensus of 5.5% m/m. With economic activity still falling -20.3% m/m in April, the modest uptick over the month still saw the annual rate falling back to -19.1%, from -10.8% y/y in the previous month. Industrial production actually lifted 6.0% m/m and construction output rebounded 8.2% m/m, but rebounds fell short of expectations and this also holds for the index of services, which lifted a mere 0.9% m/m, after still falling -18.9% m/m in April. Services are still down nearly 19% on last year’s levels, construction output is nearly 40% below the levels in May last year and overall industrial production 20%. Virus restrictions came later and subsequently were also lifted later in the UK compared to most other European countries, and forward looking confidence data are signalling that at least the construction sector is back in expansion territory. Still, the numbers highlight downside risks, especially as there is also not much progress in trade talks with the EU, leaving the risk that the transition period will end without a new deal in place.
The Office for Budget Responsibility (OBR) also issued their latest updates today and it makes sorry reading for the UK economy, with expectations of record peacetime levels of public debt and the largest decline in UK GDP in 300 years.
Cable carved out a six-day low at 1.2537, which has been partly a product of sterling underperformance following a much weaker than expected UK May GDP figure, and followed through to test 1.2505 following the OBR report. EURGBP concurrently lifted to a seven-day peak at 0.9069, and GBPJPY traded into six-day low terrain at 134.17.
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