Pound drops after data show UK economy contracting in June

Arun John

Aug 12 (Reuters) – The British pound tumbled against a strong dollar on Friday and also fell against the euro. Data showed the UK economy contracted in June, though not as much as feared.

Gross domestic product fell 0.6% in June, the biggest drop since January 2021, but not as severe as the 1.3% decline predicted by a Reuters poll of economists, according to the National Bureau of Statistics. .

The pound fell 0.58% against the dollar to $1.2143 in morning trading, sharply lower than its peers against the rising dollar.

But as markets digested a new round of hawkish rhetoric from policymakers at the US Federal Reserve, the euro and Japanese yen also fell, with the dollar likely to recoup some of its losses from the start of the week. It was useful for

The fall in June’s GDP was also due to the fact that there were two public holidays in a month to celebrate Queen Elizabeth’s platinum jubilee.

Data also suggest growing weakness in the consumer sector of the economy as Britons grapple with inflation reaching a 40-year high in the wake of the war in Ukraine.

The euro rose 0.3% against the pound to a two-and-a-half-week high of 84.82 pence.

It has averaged nearly 0.5% per week, its biggest weekly gain since mid-June, but could struggle to rise further.

ING analysts wrote in a note: “EUR/GBP could be slightly stronger than we thought, closer to the 0.8485 area.

Both the UK and mainland Europe are grappling with a series of problems due to weakening economies, steep inflation and recent growing concerns about drought.

The Bank of England predicted last week that the UK would enter recession at the end of 2022 and remain in recession until early 2024.

News UK households face new water restrictions on Friday, with parts of the UK likely to formally declare a drought, weighing on the pound reacting to such headlines this week as well. rice field.

(Reporting by Alan John Editing by Mark Potter)

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