Pound fell on the news that living standards in the UK decreased again for the first quarter due to household incomes failing to keep up with inflation.
The report from the Office for National Statistics, adjusted for inflation, said disposable household income per capita fell by 0.9%, after a 1.2% growth in the fourth quarter of 2022. Meanwhile, GDP remained unrevised at 0.1% for the first three months of the year, preventing the onset of a recession in the UK.
However, these data will likely disappoint Prime Minister Rishi Sunak and end hopes that the economy can avoid a recession. After all, the Bank of England continues to raise borrowing costs, creating additional pressure on the economy and lending. The persistently high inflation in the UK also increases the likelihood that Sunak will face serious problems in the upcoming general elections expected to take place next year.
Aside from households withdrawing money from their savings accounts, recent reports indicate declining mortgages. The savings ratio, the proportion of income remaining after expenditure on goods and services, fell from 9.3% to 8.7%, partly due to tax increases.
On the bright side, demand for housing remains high, pushing prices up in June. It gained 0.1% m/m, after declining by 0.1% in May. As for the year-on-year rates, it fell to 3.5%, slightly higher than the 3.4% in the previous month. This resulted in an average house price of £262,239, the sharpest decline since 2009.
With regards to the forex market, GBP/USD remains subdued, indicating a correction. A rise will occur if buyers gain control over 1.2660, as a breakthrough of this range will strengthen hopes for a further recovery towards 1.2710, after which a more significant upward surge towards 1.2755 may happen. In the case of a decline in the pair, bears will attempt to take control over 1.2600. If they succeed, pound will fall to 1.2570 and 1.2530.
EUR/USD could grow further if buyers consolidate above 1.0900. This will allow a move towards 1.0940 and 1.1000, heading in the direction of 1.1060. In the event of a decline around 1.0855, the pair will drop to 1.0820 and 1.0800.
