Home Daily Commentaries UK first quarter growth falls by 2%

UK first quarter growth falls by 2%

Daily Currency Update

GBP - British PoundThe first hard economic data on the impact of Coranavirus was released this morning with first quarter growth falling by 2% compared to the fourth quarter of 2019. The drop in output wasn't as bad as expected however reflects the impact of only around one week of mandatory lockdown measures being imposed by the government. The rolling monthly GDP figure for Feb/March posted a drop of -5.8% which, although again not as bad as expected, was very sharp none-the-less. It seems likely Q2 growth data which is due early August will give us a true indication of how bad the recession will likely be, with everyone hoping by then the virus is under control and we are in the beginnings of a strong rebound. With measures on exercise, socialising and going to work in some sectors being relaxed from today, there will be a keen eye on infection rates for the rest of the month to hopefully see more freedom of movement granted in early June.Yesterday saw Chancellor Rishi Sunak extend the government's furlough scheme to October however from August onwards business' will be expected to partially pick up where they can if employees are able to return to to work. Currently under the scheme the UK Govt is paying the wages of around 7.5m people costing c£8b a month. Yesterday also saw Deputy Governor, Ben Broadbent predict that inflation could turn negative around the turn of the year, however he doesn't see it being a prolonged period of damaging deflation as long as there is no second spike in Covid-19 infections in the Summer.GBP/USD is up a touch to 1.2270 with GBP/EUR at 1.1320 recouping some its declines seen over recent days.

Key Movers

US Inflation data fell by some distance yesterday as the impact of Coronavirus on the US economy was again highlighted. The annualised rate of inflation has fallen to 0.3% after a worse than expected monthly drop in CPI of 0.8% seen in April. The eye catching stat was the fall in core inflation which strips out food and energy; this posted a worse than expected drop of 0.4% which was only the second time since CPI data started being collected in the early 1960s that there had been two consecutive negative readings. On the back of this Philadelphia Fed Chairman, who is a 2020 voting member of the FOMC, said he thinks annualised CPI could turn negative towards the end of the year.Overnight the Reserve Bank of New Zealand left rates unchanged at 0.25% however it expanded its QE package to NZD60b roughly double what it was previously. RBNZ Governor Orr was the latest to echo Mario Draghi's famous "whatever it takes" mantra which was credited with saving the Eurozone from collapse in 2012. Today's big event is a speech from Fed Chairman Jerome Powell at a webinar organised by the Peterson Institute of International Economics where he is expected to comment on the state of the global economy. Expect some volatility after 2pm when this kicks off. EUR/USD is little moved around 1.08 with USD/JPY down a touch to 107 as a risk off mood hits markets following comments yesterday from leading US scientist Anthony Fauci against unlocking the US economy too soon thereby risking a second peak in Covid-19 cases.

Expected Ranges

  • GBP/USD: 1.2220 - 1.2365 ▼
  • GBP/EUR: 1.1280 - 1.1385 ▼
  • GBP/AUD: 1.8870 - 1.9020 ▼
  • GBP/NZD: 2.0250 - 2.0410 ▲
  • GBP/CAD: 1.72 - 1.7330 ▼