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The Office for National Statistics in the UK has reported earlier today that the British economy has shrunk with 0.2 per cent in the second quarter of 2019 (April to June), despite having registered a GDP growth of 0.5 per cent in the first quarter.
Initial forecasts of the Bank of England projected a decline of the gross domestic product, which somewhat diminished the total negative impact of the news, however, the projection itself was for a 0.1 per cent decrease, not 0.2. Expectedly, the most significant deterioration was registered in the production sector, as businesses leave the country ahead of the Brexit deadline and subsequently, foreign investors redirect their capital outside of the British economy.
“Services sector output provided the only positive contribution to GDP growth, although growth in this sector slowed to 0.1 % in Quarter 2 2019. The production sector contracted by 1.4% in Quarter 2 2019, providing the largest downward contribution to GDP growth; the fall was driven by a sharp decline in manufacturing output, reflective of increased volatility in the first half of 2019. ” [source]
Other central banks, such as the RBNZ have already decided to counter this global waning of manufacturing output by cutting the underlying interest rate in order to stimulate the economic activity (you can read more about the RBNZ’s decision here). Given the surprisingly bigger-than-expected fall in GDP, the BOE might be compelled to cut its interest rate too at its next meeting.
The GBPUSD pair decreased with more than 0.50% after the GDP data was released to the public, and is now trading at around 1.20600, which is the lowest level since January of 2017.
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