Sterling rises after UK economy beats expectations and exits recession
The pound is slightly higher so far in May but has fallen 1.5% this year as the dollar has risen on the back of a strong US economy
THE pound rose on Friday (May 10) after data showed the British economy beat expectations in the first quarter of the year, growing 0.6 per cent and leaving behind 2023’s mild recession.
Sterling was last up 0.1 per cent at US$1.2537, having traded at US$1.2516 before the figures were released. The pound is slightly higher so far in May but has fallen 1.5 per cent this year as the dollar has risen on the back of a strong US economy.
The Office for National Statistics data showed that Britain’s economic output grew by a stronger-than-expected 0.6 per cent in the January-to-March period, compared with the previous quarter. A Reuters poll of economists had pointed to a 0.4 per cent expansion.
“The UK economy started the year with a bang,” said Henry Cook, senior economist at lender MUFG. “Recession is firmly in the rear-view mirror.”
The euro slipped 0.1 per cent against the pound to 86.04 pence.
The Bank of England on Thursday held interest rates at a 16-year high of 5.25 per cent but noted that inflation was moving in the right direction, while a deputy governor voted for a rate cut, both signs that borrowing costs could well start to fall in the second or third quarters.
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Inflation has slowed to 3.2 per cent in March from a peak of 11.1 per cent in October 2022. The next data is due on May 22.
“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,” said Cook.
“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 rose 0.2 per cent on Thursday after US data showed that weekly jobless claims rose more than expected last week, adding to signs that the country’s labour market was weakening and the Federal Reserve was likely to cut rates this year.
However, the dollar remains up around 3.9 per cent in 2024 thanks to strong US growth. The dollar index, which tracks the currency against six peers, was flat at 105.23. REUTERS
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