Following news that the UK economy unexpectedly expanded in May and a generally weaker dollar, the British pound made a little gain on Wednesday. Although consumer services decreased as consumers were stung by the inflationary surge, the economy still saw a 0.5 percent increase in output in May. According to a Reuters poll of economists, there would be no growth from April to May.
By 06:00 GMT, the Sterling rose by 0.3 percent to $1.1937. It previously increased by 0.1 percent to $1.1894. At 84.35 pence, it was unchanged against the euro. The dollar has recently risen strongly, but investors are also concerned about political unpredictability in the wake of British Prime Minister Boris Johnson's resignation, which has caused the Sterling to plunge in recent weeks to new two-year lows.
To replace Johnson, the Conservative Party is currently choosing a new leader. Even while growth in May came in higher than anticipated, other signs indicate waning economic momentum in Britain, making it more challenging for the Bank of England to combat inflation by raising interest rates without unduly hurting the economy. "We do think that the latest growth data matters for the BoE given the extent of the slowdown and the softness in the forward-looking indicators." We continue our call for a 25bp (basis points) hike from the BoE next month despite it being a very close call and the fact that we haven't yet received a complete set of information before the August meeting., said Morgan Stanley economist Bruna Skarica.
The BoE will meet again on August 4th. The leadership contest for the Conservative party will also be watched by investors. Most of the candidates for Johnson's replacement pledged to reduce taxes in order to stimulate economic growth. Rishi Sunak, a former finance minister who is running, stated that he wants to first manage inflation.
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