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HomeboePound Dips as UK Economy Shows Partial Recovery in August

Pound Dips as UK Economy Shows Partial Recovery in August

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The pound has dipped slightly after data revealed that the UK economy experienced only partial recovery in August following a significant drop the previous month. This comes after a period of high inflation and 14 consecutive interest rate hikes by the Bank of England (BoE), resulting in sluggish growth for the country. Sterling fell by 0.15% against the US dollar to $1.2296, retracting from a three-week high reached on Wednesday. Against the euro, the pound dropped by 0.14% to 86.35 pence, having previously hit its highest level against the single currency since 19 September.

Nick Rees, FX market analyst at Monex Europe, commented on the latest economic data, stating that it reinforces the narrative that the UK is beginning to experience stagnation rather than recession. He added that, given the lack of a growth pickup, further rate hikes are unnecessary, but with a sharp recession appearing unlikely, there is also no need to bring forward the timing of any rate cuts.

The recent rally of the pound has eased, partly due to investors reassessing their expectations for US interest rates and the outlook for euro zone growth, rather than any notable factor in the UK specifically. Market analysis indicates that there will be no further rate hikes by the BoE, as the central bank did not raise its benchmark interest rate in September. According to LSEG data, markets are currently pricing in the possibility of a first rate cut in August next year.

Huw Pill, Chief Economist at the BoE, stated that the central bank is committed to achieving its inflation target. He acknowledged that it is becoming a more finely balanced issue as to whether enough has been done or whether further action is required. However, he assured that the bank will take the necessary steps to maintain inflation at 2% on a sustainable basis.

In an interview with the BBC, BoE policymaker Swati Dhingra revealed that the UK economy has already reached a state of stagnation. Dhingra suggested that approximately 20% to 25% of the impact of the interest rate hikes has been felt in the economy.

Overall, the latest economic data indicates that the UK economy is experiencing sluggish growth and is at risk of stagnation. The pound has seen a slight decline against major currencies, reflecting the uncertainty surrounding the country’s economic outlook. The BoE has indicated that it remains committed to achieving its inflation target and will take appropriate action as necessary. However, market analysis suggests that there will be no further rate hikes by the central bank and the possibility of a rate cut is being factored in for next year.

More detail via Reuters here… ( Image via Reuters )

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