LONDON, July 11 (Reuters) – Sterling rose to
its highest in four months on Thursday, after data showed the UK
economy grew more quickly than expected in May, potentially
lowering the chances of an August rate cut.
Britain’s economic output rose by 0.4% in May, data from the
Office for National Statistics showed, beating the 0.2% increase
forecast by a Reuters poll of economists.
The pound rose by as much as 0.12% to $1.2865, its highest
since March 8, building on a 0.48% increase in the
previous day.
Sterling also strengthened against the euro,
with the common currency down around 0.1% to its weakest in
nearly a month at 84.21 pence.
“This snapshot of an economy growing a bit faster than
forecast, could make Bank of England policymakers that bit more
reticent about voting for an interest rate cut on 1 August,”
said Susannah Streeter, head of money and markets, Hargreaves
Lansdown.
Futures markets show traders attach a roughly 50/50 chance
of the Bank of England cutting rates at its Aug. 1 meeting.
The stronger-than-expected GDP reinforced a Wednesday speech
by BoE chief economist Huw Pill, which also caused markets to
push back bets on policy easing.
Pill said services inflation and wage growth showed
“uncomfortable strength” despite headline inflation falling to
the BoE’s 2% target in May, and it was unlikely that June
inflation figures due next week would change the big picture.
Pill is seen as a centrist on the Monetary Policy Committee,
and the comments were his first in more than six weeks as the
BoE went into a quiet period in May in the run-up to last week’s
parliamentary elections.
“Although he (Pill) stressed it was a question of when, not
if, interest rate cuts will come, the possibility of a summer
rate cut is fading,” said Streeter.
The big picture for global currencies will be shaped by U.S.
inflation data due at 1230 GMT, which will reinforce or
challenge current market expectations that the Federal Reserve
is more likely than not to cut rates in September.
(Reporting by Amanda Cooper and Alun John; Editing by Arun
Koyyur)
