The huge fall in testing and trace activity, which detracted 0.5ppt from the monthly number, was primarily to blame for the decline in growth. In view of the GDP number On June 13, the Bank of England’s growth projection of 0.1% for the second quarter is difficult to be met, with risks pointing to a quarterly GDP loss of 0.5%, approximately.
Furthermore, the cost-of-living squeeze emphasizes the UK economy’s stagflationary vulnerabilities, especially as new lows could be on the horizon for consumer sentiment. The CBI reduced its GDP forecast to 3.7%for 2022, from 5.1%, and 1% which was initially 3% in 2023, whereas inflation is expected to incur yet another rise in October of roughly 8.7%.
As a result, the Bank of England’s situation has become even more complicated. The Bank of England is set to hike interest rates for the seventh time in a row. Markets are already pricing in approximately 40 basis points of tightening at the forthcoming meeting, which is unexpected.
This is improbable because the Bank of England has been a hesitant hiker throughout this tightening cycle, and they have also highlighted concerns about growth, which will be heightened following the GDP report of June 13. As a result, GBP weakness will continue, with the currency serving as the leading example of stagflation and remaining exposed to the repricing of doves, which are partial to monetary policies which are expansionary.
A year-to-date (YTD) low seems to be evident due to the divergence of the Relative Strength Index (RSI) to a bearish sentiment, as well as the double top in the GBP/USD pair. Meanwhile, in the GBP/JPY, the same factors lead to significant reversal risk exposure.
