UK GDP Flat In April, Pound Sterling Firm Vs Euro And Dollar

Markets will discuss the underlying UK performance after the latest GDP data, especially with weakness in the production and construction sectors, while the political impact will also be significant.

The Pound to Dollar (GBP/USD) exchange rate briefly dipped on the data but settled close to 1.2750 and US events will be crucial for the Pound during the day.

The Pound to Euro (GBP/EUR) exchange rate held around 1.1865 and close to 22-month highs.

According to the latest ONS estimate, UK GDP was unchanged in April after a 0.4% increase the previous month and in line with consensus forecasts.

There was a 0.9% decline in industrial production for the month while construction reported a 1.4% decline, the third successive contraction.

The economy was, therefore, dependent on a net gain of 0.2% for the services sector to avoid a fresh contraction.

GDP increased 0.7% in the three months to April compared with the previous quarter.

Output in consumer-facing services fell by 0.7% in April 2024, following 0.78% growth previously with notable weakness in retail sales.

The immediate market impact is likely to be limited with the data in line with expectations, but there will be a political impact with opposition parties inevitably claiming that the data illustrates underlying weakness.

Key Quotes:

Barclays Research:

“Monthly UK GDP data for April came in slightly above Barclays Research and market consensus expectations at flat on the month (Barclays -0.1% m/m, BBG -0.1% m/m). This followed an expansion of 0.4% m/m in March and growth of 0.6% for Q1 as a whole. The service sector on the other hand slowed from 0.5% m/m in March to 0.2% in April, however this print was still slightly stronger than markets expected.”

“Barclays Research view this print as on the margin a GBP positive, and we have seen GBP appreciate slightly vs. the USD since the data were released (Bloomberg).”

“This print adds to the positives for GBP we have seen over the past few weeks, with EURGBP now trading at 0.8430 (Bloomberg)”

Lloyds Bank:

“Overall therefore, the lack of ‘payback’ in the April GDP print and the upbeat tone reflected in a range of business activity surveys – including our own Lloyds Business Barometer and the PMIs – suggest that the underlying economy may be holding up better than expected.

“It is worth noting that even if the economy were to record no growth in both May and June, overall GDP in Q2 overall would still be up around 0.4%q/q, an outturn that would be double the 0.2% rise expected by the Bank of England.

“Such an outturn, coming swiftly after the above-expectation rise in Q1 GDP (0.6%q/q), would not only mark a solid recovery from the recession seen in the second half of last year, but also leave the UK on track for a stronger growth outturn for 2024 as a a whole than the Bank of England currently expects (0.4%).”