Positive sentiment to provide GBP support despite the poor economic outlook – MUFG

The UK GDP data has just been released for both the month of June and for Q2. The June contraction has come in smaller than expected at -0.6%, which has resulted in a Q2 contraction of -0.1% Q/Q rather than the expected -0.2%. But in the view of economists at MUFG Bank, better UK GDP is less important for GBP than broader risk sentiment.

Smaller than expected June GDP contraction not to alter BoE’s outlook

“The better June GDP data will certainly come as a relief and could well provide some near-term support for the pound. But in reality, the better June print doesn’t change the overall backdrop and won’t alter at all the BoE’s outlook and hence its policy outlook.” 

“The BoE was forecasting a rebound in Q3 GDP before we enter the five-quarter period of GDP contraction and today’s data doesn’t change that.”

“The good news for the pound is the risk sentiment is positive and we have seen a notable rebound in equities – if that sentiment is maintained it will help provide GBP support despite the poor economic outlook.”