Poor GDP performance marks the end of a tough week for the Pound

Daily Currency Update

The pound continues to fall as UK GDP shows a surprise decline in Economic output for May, adding more pressure to sterling exchange rates.

GBP/EUR dropped to 1.1580 and GBP/USD fell to 1.3540 after the ONS shows UK GDP contract 0.1% month on month in May. Following a -0.3% print in April, the UK has now recorded 2 consecutive monthly declines in economic output.

With a continuation in the decline of industrial production (-0.9% m/m) as well as manufacturing production (-1.0% m/m), the general consensus is that the Bank of England will have to quicken the pace of interest rate cuts to stimulate momentum within the UK economy, contributing in the short term to the further decline of the pound.

Despite the surprisingly strong growth achieved in Q1 the UK economy seems to be struggling again, as businesses continue to get to grips with increased costs and consumers deal with the associated lack of confidence.

The data comes at a time of rising concerns about the outlook for UK finances, with tremors in the debt markets signalling that the UK's debt is running out of control.

With the Chancellor growing desperate to drive up the income the government receives in rates, she will likely need to raise the rate of tax which could further compound the growth slowdown.