UK GDP up by 0.8% in May 2021 brings a surge in the British pound to USD currency pair to 1.3900 levels, with strong business growth in major sectors.
British Pound to USD Moves to 1.3900 Levels
The GDP has grown 0.8% in May 2021, showing the fourth consecutive month of growth. Growth in the production and service sector supports the GDP growth in the United Kingdom. The foreign exchange market saw the GBP/USD surge on July 9, from 1.3750 to 1.3900, with better GDP growth in the economy in May.
The UK exit from the European Union took place on January 31, 2020. There was a brief slump in the economy and the forex market when the Brexit deal took place. Further, the pandemic dampened economic activity in the UK, which took the British pounds to dollars lower as currency trading slowed down with uncertainty growing among investors. But signs of good recovery in 2021 bring hope to the country.
The British pound to USD currency pair is at 1.3840 during trading hours on Tuesday, July 13, 2021. After surging to the 1.39 levels, the forex market saw the sterling fall to 1.3840 levels on coronavirus fears resurging.
The 200-DMA is at the 1.37 level, and the GBP/USD foreign currency exchange has found support in this area many times in July.
UK Business Growth in All Sectors
The production sector shows growth at 0.8% in May 2021. Electricity, gas supply, and air conditioning supply are increasing. Industrial production month-on-month shows improvement from -1.0% to 0.8%. There is development in mining and quarrying. The manufacturing production month-on-month has improved from -0.3% to -0.1%.
The service sector is up by 0.9% in May 2021. The foodservice sector and accommodation have gone up 37.1%. Good recovery in the service sector shows improvement in business activity. Consumer spending is growing with the roll-back of pandemic restrictions. Job creation is increasing at a fast rate.
The construction sector has come down for the second month by 0.8% but above pre-pandemic levels of February 2021. Construct output has come down, as new work and repair worth has fallen in May 2021. Adverse weather is another cause for the slowdown in construction output.
UK Construction PMI shows growth from 64.2 in May to 66.3 in June 2021, as overall activity improves. There is a sharp rise in new construction orders, though there is a shortage of construction materials and products.
UK exports to the EU have gone up to the highest level since October 2019. Total exports are at 27.9 billion pounds. Imports have also gone up. The country may come back to pre-pandemic levels by the end of the year, say experts.
Inflation worries are on the rise, though overall growth is present. The imbalance between demand and supply causes cost inflation. The British pounds to dollars foreign currency exchange are volatile with development on one side and inflation on the other side. Small and medium businesses remain under pressure with strict regulatory procedures in the fishing sector.
UK Economy Bounces
Lifting of lockdown restriction from July 19 gives rise to optimism in the country, bringing up business activity. The covid-19 vaccine rollout has been satisfactory.
Inflation pressure is at a four-year high. The Suez Canal blockage has lifted the cost of goods and services and is another cause for inflation. But business confidence appears high as hiring and investments improve sentiment. Costs are increasing as staff salary may increase. It will also increase consumer price inflation say, analysts.
There is an imbalance between supply and demand in the country with the Brexit deal and the pandemic. The Brexit deal, separating the UK from the Euro, has brought disturbance in the country. After massive job losses and business closures, the country is moving forward slowly.
According to a report by the Resolution Foundation, the wealth gap between the rich and the poor is increasing. The lockdown has brought down spending opportunities while house prices are moving up. The wealthy are growing richer while the lower rung of the society is growing poorer.
Covid Restrictions in the UK
The third-quarter growth may be at around 1.5% if covid infections do not resurface. The government may bring further relaxation in the coming weeks if conditions are stable. People have to limit socializing and be self-disciplined till infection rates come down further, says the government.
The easing of coronavirus restriction shows improving economic activities. England, Wales, and Scotland continue to see high infection rates, where economic relaxations are slower. Fear of the virus resurfacing again hits currency trading in the UK.
The exchange rate euro to dollar is trading lower, at 0.8528 on July 13, 2021, towards the June lows. If the EUR/GBP currency pair falls further, it may slide to the April lows at 0.8500.
The British pound fell against the Japanese yen last week. The area at ¥149 is strong support for the foreign exchange market, and if it breaks, the pair may move towards ¥145 levels.
10-year US Treasury yield remains volatile.