Sterling Strengthens Amidst Economic Growth in Q2 2024

The British pound saw a modest rise after data revealed the UK's economy grew by 0.6% in the second quarter of 2024, matching economists' expectations. This continues from a 0.7% increase in the first quarter, despite concerns over consumer spending and potential further rate cuts by the Bank of England.

The British pound saw a minor boost on Thursday following data indicating that the UK's economy expanded as anticipated in the second quarter of 2024.

Sterling climbed 0.2% against the dollar, trading at $1.2854, and appreciated against the euro, which slipped 0.19% to 85.68 pence. The economy's 0.6% growth in Q2 aligns with forecasted figures, building on the 0.7% recovery witnessed in Q1 of the year after a brief recession in late 2023, according to official statistics.

Analysts noted that the growth was partly fueled by increased government spending, while private consumption remained tepid. "We are looking for a boost in consumer spending; otherwise, the gains in sterling may diminish, potentially leading to further rate cuts by the Bank of England," explained Jane Foley, Rabobank's Head of FX Strategy.

Earlier this month, the BoE reduced interest rates from a 16-year high, with market expectations suggesting two more 25 basis point cuts this year. However, with less than a 40% likelihood of a cut in the September meeting, cautious moves are expected. "There isn't sufficient evidence for consecutive cuts given the services inflation rate is still at 5.2%," Foley added.

Official data released Wednesday showed the first rise in British consumer price inflation this year in July. Annual services price inflation dropped to 5.2% in July from 5.7% in June, marking the lowest rate since June 2022 and falling short of all Reuters poll forecasts.

(With inputs from agencies.)