British Pound: Solid UK data, limited BoE impact – BBH

Brown Brothers Harriman’s Elias Haddad reports that the British Pound (GBP) is trading directionless near 1.3500 against the US Dollar (USD). UK's second quarter (Q2) and June Gross Domestic Product (GDP) data indicate positive economic activity. Growth was fueled by investment and consumption, while government spending acted as a dampener.

The UK's monthly GDP exceeded expectations, but Haddad believes these figures will not alter Bank of England (BOE) rate expectations. July's Consumer Price Index (CPI) is considered more crucial for policy decisions. UK economic activity showed promise in Q2 and June. Real GDP grew 0.4% quarter-over-quarter (q/q) compared to 0.6% in Q1, aligning with expectations and slightly surpassing the BOE’s 0.3% q/q forecast.

Notable domestic demand contributed to Q2 growth, with gross fixed capital formation up by 0.24 percentage points (ppt) and household consumption up by 0.16 ppt. Government spending was the main factor hindering growth in Q2, with a decline of 0.06 ppt due to cuts in health and education spending. Similarly, real GDP unexpectedly rose 0.3% month-over-month (m/m) in June, outpacing the consensus of -0.1% and the previous month's 0.0% growth, primarily driven by a 0.4% m/m surge in services output.

The UK's GDP figures are unlikely to impact BOE rate expectations. The inflation situation is a more pressing concern for the BOE, with the upcoming July CPI report scheduled for the following week.