UK economy drops off less than expected in May

In May, the estimated monthly real GDP in the UK experienced a decrease of 0.1%, following a growth of 0.2% in April. When considering the broader data, the GDP showed no growth over the three-month period leading up to May. Additionally, compared to the same month in the previous year, the monthly GDP fell by 0.4% in May 2023. It is important to note that the Platinum Jubilee resulted in an additional working day in May, but two fewer days in June, which could influence the final data when compared to the same period in 2022, according to the Office for National Statistics (ONS).

UK Chancellor Hunt stated that the extra bank holiday had an impact on growth in May, while inflation continued to hinder economic growth prospects.

In the services sector, there was no growth in May, following a growth of 0.3% in April. Overall, the services sector showed no growth over the three-month period leading up to May 2023, when compared to the three months ending in February. The human health and social work activities sector experienced the largest increase of 1.1%, which was mostly offset by a 0.5% decline in wholesale and retail trade, as well as the repair of motor vehicles and motorcycles.

The current estimation suggests that UK GDP is now 0.2% above its pre-COVID levels from February 2020.

The Governor of the Bank of England, Andrew Bailey, recently addressed the rise in wages in the UK, which led to increased expectations of a rate hike. Despite this, Governor Bailey maintains that the UK is on the right track in its fight against inflation and expects inflation to significantly decrease in the second quarter of 2023. He also stated that both the economy and UK banks are currently managing well, despite the unprecedented rate hikes in the past 18 months.

Although UK GDP is higher than the pre-pandemic level in February 2020, there are concerns that the Bank of England may need to implement more restrictive measures to curb inflation. This, in turn, could potentially lead the UK economy into a recession. Chancellor Hunt's comments today reiterated the adverse effects of inflation on the economy. All eyes are now on the Bank of England as we approach the August Monetary Policy Committee (MPC) meeting.

The initial market response to this news has resulted in GBPUSD remaining relatively stable after yesterday's rally, as the psychological level of 1.3000 was breached. Taking a broader technical perspective, the GBPUSD price has currently failed to close above the 1.3000 level, and a failure to do so could result in a retracement towards the support level at 1.2875.

‍