Image source: Melinda Nagy © 123RF.com
The Office for National Statistics in the United Kingdom released its quarterly report reflecting on the observed changes in the country's GDP growth rate over the three months to March.
According to the findings of the report, the British economy has shrunk by 2 per cent as a consequence of the coronavirus epidemic and the subsequent measures implemented by the government in a bid to curtail the spread of COVID-19.
Even though the British economy currently finds itself into a structural recession, the observed rate of economic contraction is lesser than previously thought. The 2 per cent fall in the GDP growth rate is smaller than the initial forecasts, which estimated a 2.6 per cent contraction.
UK GDP Growth Rate. Image source: TradingEconomics.com
The markets did not react quite robustly to the news since a global economic slump prompted by the pandemic is expected to affect all facets of the global economy. The market has already started pricing in such poor performances of many national economies.
The GDP growth rate is likely to remain negative in the second quarter as well because the economy remains mostly closed down in spite of the government's recent announcements of a gradual reopening.
Some industries such as hospitality and tourism are unlikely to return to normal before the beginning of July due to the need for maintaining the policies of social distancing for longer. This means that the overall economic activity is likely going to remain muted into the second part of the year.
Nevertheless, the better-than-expected results from today are welcoming news for the British policymakers because evidently, the initial shock from the outset of the coronavirus crisis has been less detrimental than previously feared.
This could, in turn, mean that the gradual economic recovery could be achieved faster than the early economic models projected. Such an optimistic outlook is supported by the recent interventions by the Bank of England.
In light of all of these developments, the British pound can be anticipated to strengthened marginally in the short run. The sterling has been consolidating against the greenback over the last several days, which makes the subsequent emergence of a new directional swing seem more likely.
The GBPUSD continues trading within the boundaries of an Accumulation range, after having recently formed a failed breakout followed by the formation of a spring (failed breakdown).
The MACD currently finds itself at a crucial junction, and a potential bullish crossover could elucidate the initial steps in the establishment of a new bullish uptrend.
GBPUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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