UK GDP Crashes in Q2
It hasn’t been a great week for GBP bulls. Following the largest employment decline since 2009, reported yesterday, Q2 GDP today has confirmed a technical recession in the UK. The Q2 release was recorded at -20.4%, marking the biggest quarterly contraction on record, far surpassing the -2.2% reading recorded in Q1.
June GDP Rises
The data was not all bad, however, in June, monthly GDP was seen expanding at a rate of 8.7% following the easing of government lockdown measures, surpassing expectations of an 8.1% reading, and marking a firm improvement on the prior month’s 2.4% reading.
Looking at the breakdown of the data released by the Office for National Statistics, services, construction and production all recorded falls over Q2. Commenting on the data, Jonathan Athow, the Deputy National Statistician for Economic Statistics, said: “The economy began to bounce back in June with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover. Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.”
Further Data Upside in June
In separate data released today, there were further positive signs over the health of the UK economic recovery. Industrial production was seen higher by 9.3% over the month, versus 9.2% expected and 6.2% prior. Similarly, manufacturing production was seen higher by 11% versus 10% expected and 8.3% prior.
Concerns Over The Outlook
Meanwhile, construction output was also seen higher over June, rising, by 235% versus 15.1% expected and 7.6% prior. However, preliminary business investment did not se such a rebound with the indicator falling by 31.4% over the month, versus -30% expected and -0.3% prior. The severe drop in business investment reflects the highly uncertain outlook for the economy as a result of the difficulty in predicting the path of the pandemic and the fear that further lockdowns will be introduced, especially as we head through autumn and into winter.
The BOE has recently noted that it is considering the use of negative rates as a means of bolstering the support to the economy should future conditions require it. Having recently expanded its QE program the bank is now in wait-and-see mode with regard to how the pandemic plays out over the coming months.
GBPUSD (Bullish above 1.2649)
From a technical perspective. GBPUSD has been trading higher within the bull channel which has framed the recovery. However, the rally has now stalled at a test of the .3191 level resistance, capped by the bearish trend line also. While price remains above the 1.2649 level (where the 50dma is sitting also) the near-term outlook remains bullish with the 1.3516 level the next upside area to watch.
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