Fundamental Comment

Sterling retreats after UK dull growth data

Sterling retreats after UK dull growth data

The British Pound witnessed negative pressure in its trading against the dollar for the second day in a row, due to the negative impact of the growth data issued by the British economy, which witnessed the worst performance recorded during the second quarter.

The pound sterling is trading against the dollar around the level of 1.3030, after hitting the highest level at 1.3066 and the lowest level at 1.3015.

The British economy shrank by a record 20.4% in the April-June quarter when the coronavirus lockdown measures were in place, the largest contraction reported by any major economy so far, in addition to a wave of job losses.

The previous reading was witnessing a contraction of growth by 2.2%, while during the month of June alone the British economy recorded a growth of 8.7% from a previous growth of 2.4%.

With these numbers, the British economy has entered the official recession, as it has recorded two consecutive quarters of contraction.

The British economy began to recover in June, though GDP in June remained at a lower level than February before the virus hit.

The Bank of England predicted last week that it will take until the last quarter of 2021 for the economy to regain its former pace, and warned that unemployment is likely to rise sharply.

Industrial production in June registered a 16.8% rise, lower than a year earlier, compared to a 23.3% decline in May. Analysts suggest that the recovery towards the end of the quarter may only reflect a return to demand, not the start of a sustainable recovery.

Projections suggest that the prospect of a rapid V-shaped recovery remains far, as recent gains in production may fade in the coming months as the economic damage from the epidemic increasingly weighs on economic activity, especially as government support measures fade away.

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