The UK economy contracted faster than expected in July which is weighing on the pound this morning.
GDP fell 0.5%, much faster than the 0.2% contraction that was expected, but as has been the case throughout this year, one-off factors played a big role. Strikes and the weather were largely blamed for the steep decline although some are clearly worried that overall momentum in the economy remains weak.
I’m not sure the data will really sway the Bank of England at all next week. Not against the backdrop of such strong wage growth, as was reported yesterday. Markets are now pricing in a rate hike at around 75% which seems overly cautious to me but then, perhaps Bailey’s words last week are continuing to ring in the ears of traders.
The Governor and his colleagues indicated the discussion will be more balanced than people seem to think which suggested a hold is very much on the table this month. That seems a little far-fetched at this stage and I think the words are probably intended for a little further down the line in November but then it wouldn’t be the first time the BoE has surprised us. That said, it also wouldn’t be the first time they’ve hinted at something and not followed through.
