FX.co ★ Sterling Falls to Over 2-Week Low after GDP Contraction

The British pound declined to $1.354, marking its lowest level in over two weeks, as the UK economy contracted for the second consecutive month. In May, GDP decreased by 0.1%, failing to meet expectations for a 0.1% increase, after a 0.3% contraction in April. These consecutive downturns have heightened concerns about a possible contraction in the second quarter. Notably, manufacturing output has weakened significantly, and the impact of increased taxes coupled with global trade tensions has exacerbated the situation. In April, U.S. President Donald Trump implemented comprehensive tariffs, including a 10% tax on UK goods, despite a relatively balanced trade relationship in goods. Since then, the UK has successfully negotiated a trade agreement with the U.S. ahead of the European Union, yet growth momentum appears to be waning. Following a robust 0.7% GDP increase in Q1, economists anticipate slower growth moving forward. The Bank of England, having reduced interest rates from 5.25% to 4.25% over the last year, is now widely expected to further ease rates in August, despite inflation being above 3%. Governor Bailey has suggested a gradual reduction path for rates, though he has not definitively committed to taking action in August.