GDP Better Than Expected
The latest round of UK data this morning has helped add to the bullish sentiment taking hold in the British Pound. Q1 GDP was the main release today, expected to come in at -1.7%. however, the UK economy was seen to have weathered the storm of a full quarter of lockdown better than expected with the economy contracting just -1.5%. The news will be well received by the BOE after it revised its own forecasts for the quarter down to a similar level in light of better data recently.
Month on month, the economy grew at 2.1% over March, exceeding forecasts and highlighting the extent to which the economic recovery is progressing. With this latest rise over March, the overall GDP level is now just 8.7% off the 2019 pre-pandemic levels, as per the Office for National Statistics’ data.
Production Rises Again
Away from the headline GDP release, we also had industrial production and manufacturing production which were both seen growing at 1.8% and 2.1% respectively, rising from the prior month’s 1% and 1.5%, beating expectations of 1% and 1%. Production has maintained a resilient tone throughout the pandemic as, despite the closure of all non-essential retailers, the pandemic has fuelled a surge in online shopping, leading to record demand for producers.
Construction output over the month was also seen rising firmly, hitting 5.8% from the prior month’s 2.3% and well above the 1.1% forecast. Ahead of the reopening underway across the month, construction has seen a return to form as companies and individuals looks ahead to a post-restrictions UK environment.
The BOE has recently upgraded its economic forecasts for the year ahead along with revising higher its inflation forecasts. Citing the success of the UK government’s vaccine program, as well as the success of reopening so far, the BOE has noted that it expects the UK’s economic recovery to gain further momentum over coming months.
For now, it maintains the view that any peak in inflation will be temporary. However, given that the economy is so far progressing above forecasts, traders are aware that this view could change, especially over the summer as the reality of reopening is realised.
The rally in GBPUSD has seen price trading back up to retest the broken bull channel around the 1.4130 mark, just below the current 2021 peak. With the channel holding as resistance for now and with momentum studies showing divergence, there is risk of a correction lower here. However while 1.3997 holds as support, the focus is on a continued push higher and a break above the 1.4248 level next.
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