Sterling Remains Near One-Month Low Despite UK Economic Growth in August
On Friday, the British pound hovered near a one-month low against the U.S. dollar, receiving little support from data showing the UK economy returned to growth in August. Sterling was flat, trading at $1.3069, barely off its Thursday low of $1.3011—its weakest level since mid-September.
Against the euro, the pound was also steady, trading at 83.70 pence.
UK Economy Growth
According to the Office for National Statistics, the UK economy grew by 0.2% in August, aligning with economist expectations and marking a recovery after two months of stagnation. While this provides some relief for the new Labour government ahead of its first budget, the slower pace of growth compared to earlier in the year reflects the challenges ahead.
Despite this positive data, the pound showed little movement. Lee Hardman, senior FX strategist at MUFG, commented, “The data confirms that the UK economy is slowing in the second half of this year, but this was anticipated given the unsustainable growth seen earlier.”
Focus on BoE’s Next Move
Attention now shifts to the Bank of England (BoE), with upcoming inflation and labor market reports expected to guide the central bank’s policy direction. The BoE’s response to these figures will play a crucial role in shaping the pound’s outlook ahead of its next meeting in November.
Previously, the pound had benefited from expectations that the BoE would cut rates more slowly than the Federal Reserve and European Central Bank. However, recent developments have altered these projections. Markets now expect the Federal Reserve to ease less aggressively, while BoE Governor Andrew Bailey hinted that the central bank could consider more aggressive rate cuts if inflationary pressures continue to subside.
While the Fed remains on track for two 25 basis-point rate cuts in its remaining 2024 meetings, the BoE is expected to implement at least one 25 bp cut across its final two meetings, with around a 40% chance of a second.
