Markets

Cable drops as UK economy contracts

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The UK
economy contracted by 0.2% in the second quarter of the year, its worst
performance since 2012.

Figures
from the Office for National Statistics showed the surprise contraction, which
was significantly lower than the flatline economists expected. It also follows
strong growth of 1.8% seen in Q1.

“PMI data
had indicated we were set for a contraction, albeit not so severe,” explained
Neil Wilson, Chief Markets Analyst at MARKETS.COM.

Much of the
growth in the first quarter was attributed to panic buying and stockpiling
before the original March Brexit deadline. Indeed, Head of GDP Rob Kent-Smith,
also blamed the 2.3% drop in Manufacturing output in the Brexit delay. The
initial strong start to the year included production brought forward ahead of
the UKs departure from the EU.

The
services sector was the only positive contributor to GDP growth in the quarter
to June 2019 – but only just at 0.1%. This marks the weakest quarterly growth
in this sector since Q2 2016.

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Output from
the production and construction sectors also contracted at -1.4% and -1.3%
respectively.

Cable
dropped sharply on the news, before recovering slightly. Having fallen
below 1.2090, GBPUSD was last recovering above 1.21 but remains under pressure
and a good 30 pips away from its highs of the day. Having breached yesterdays
lows we may see further testing of the downside.

“Clearly the unwind of stockpiling carried out in Q1 ahead
of the aborted March 31st Brexit deadline has had an impact. Also,
we can point to plenty of data around the world that shows we are in the middle
of a broad global slowdown,” Wilson said.

“But you do have to admit that the pervasive uncertainty
around Brexit is acting as a brake on the economy.”

Rolling three-month growth was negative 0.2% in the three
months to June 2019, the first time since Q4 2012. This continued a steady
decline in three-month growth since the start of the year.

So, was Read More

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