Latest data indicating a weakening British economy caused pound to fall

After the recent disclosure of data by The Office for National Statistics, it became clear that British GDP had declined by 0.6% in June. This fact, combined with other evidence of economic shrinking, such as the growing inflation and the decline of consumption sector of the economy, resulted in the fall of the pound sterling against the US dollar and EU euro, while the dollar is getting stronger.

During the morning trade, the pound sterling fell by 0.58% to 1.2143 in relation to the US dollar, which was the sharpest fall among other currency pairs to the US dollar. The pound has also declined against the EU euro, with the euro growing by 0.3% and reaching the level of 84.82 pence, which is the highest result in two and a half weeks.

The recent rise of the euro is the maximum weekly rise since mid-June, although the subsequent growth is not expected due to economic problems which are faced by mainland Europe at the moment. According to specialists of IGN, EUR/GBP pair is likely to reach the level of 0.8485, as it turned out to be firmer than it was considered before, but going above said level isn’t about to happen because of the mentioned challenges of the European economies.

It’s also worth noting that despite growing of EUR/GBP, the EU euro is weakening against the US dollar, as well as the Japanese yen is losing its ground in relation to the dollar. The dollar is getting stronger again, backed by the hawkish statements made by the U.S. Federal Reserve representatives, which resulted in the dollar getting back some positions it had lost at the beginning of the week.

So, the fall of the pound sterling is connected with the rise of the dollar, and is also caused by economic challenges Great Britain is experiencing now.

The current state of the British economy might be considered a decline as a consequence of several reasons, such as the latest drop in gross domestic product by 0.6%, and a notable decrease in consumer-related segments of the national economy. The latter fact is directly linked with the consequences of the inflation, which is reported to be the strongest one in 40 years. The abovementioned challenges are also underpinned by the growing concern about possible drought and the upcoming constraints related to water shortage, which also has its effect on consumers and the economy in general.

The current state of inflation, which was partly triggered by the war in Ukraine, has led to a response from the Bank of England. Experts predict that the inflation will possibly surge up to more than 13% by October, and to avoid or reduce that the Bank of England has raised interest rates. A recession is expected to happen by the end of 2022, and its end isn’t supposed to come earlier than by 2024.

The situation with decline in GDP is not as severe as it was predicted by economists in the survey made by Reuters, with its expected rate of decrease being assessed as by 1.3%. In reality, GDP fell by 0.6%, which has still become the most notable decrease over the last year and a half, and had a significant impact on the pound sterling rates. The fall in GDP is partly connected with the celebration of the Queen’s Platinum Jubilee in June, as there were two additional holidays.

Another factor which adds up to a challenging economic environment is the possibility of drought, with the related restrictions following. The Britons faced some water constraints on Friday, so a drought is expected to be declared soon in some parts of the country.