Pound sterling unmoved by strong second quarter GDP growth as inflation fears ease

B.y Joice Alves

LONDON, September 30th (Reuters) – Sterling stabilized near a nine-month low on Thursday amid concerns over UK economic growth, with inflation expected to rise as the country grapples with a fuel crisis.

The pound sterling was one of the strongest G10 currencies this year as investors bet the UK economy would get out of the pandemic faster thanks to the UK’s swift vaccination program. But that narrative collapsed when the pound erased all of its strong gains in 2021, down about eight cents since its peak in June.

Data showing that gross domestic product rose 5.5% in the second quarter, more than previously assumed, did little to cheer up sterling investors.

The pound was unchanged against the dollar at around 0845 GMT at $ 1.3431, not far from its nine-month lows from the previous day. GBP = D3 Against the euro, the pound flattened at 86.36 pence, close to a two-month low on Wednesday.

“The GBP is likely to be overreacting to the worsening energy and fuel crisis,” Unicredit analysts said in a press release. “We expect GBP to rebound on the prospect of higher domestic rates, but this is unlikely in the near future.”

Gas station pumps ran dry in UK cities this week, and sellers rationed sales as a shortage of truckers put a strain on supply chains.

Bank of England Governor Andrew Bailey said Wednesday he expected the UK economy to recover from pre-pandemic production levels early next year, a little later than the central bank had predicted last month.

“This seems to contradict some speculation that the BoE could rise as early as November,” said Chris Turner, ING’s global head of markets.

According to an opinion poll by Kantar Public, people in the UK have become more pessimistic about the economy amid mounting pressure on household budgets from rising energy prices and wider inflation.

UK house prices rose 0.1% in September versus August, figures from mortgage lender Nationwide showed.

The five-year, five-year inflation-linked forward swap GBIL5YF5Y = R – a proxy for inflation expectations for the next five years – rose to 3.905% on Tuesday, the highest since Refinitiv’s daily records began in 2013, and rose from 3.878% on Monday.

(Reporting by Joice Alves, Editing by William Maclean)

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