The British pound is nearing a one-year peak against the US dollar following stronger-than-expected economic growth in the UK, which has postponed expectations of interest rate cuts this year.
Sterling climbed 0.7 per cent against the dollar to $1.29, its highest level since July 19 last year, as financial markets scaled back their predictions of an August interest rate reduction by the Bank of England. This reassessment was prompted by official data showing a 0.4per cent monthly GDP expansion in May, surpassing expectations of 0.2 per cent, putting the UK on track for its fastest annual growth in two years.
A growing economy, coupled with persistent inflation in the services sector, may dissuade the Bank's policymakers from lowering the base rate from its current 5.25 per cent next month. Huw Pill, the Bank's chief economist, highlighted that key wage inflation measures remained "uncomfortably" high. Consequently, traders have reduced their odds of an August rate cut from 65 per cent earlier in the week to below 50 per cent.
May's GDP figures indicate a 0.9 per cent expansion over the past three months and a 1.4 per cent increase year-on-year, rebounding from a brief recession at the end of 2023 and marking the strongest growth since Russia's invasion of Ukraine in February 2022.
The likelihood of a rate cut next month hinges on forthcoming data on wage growth, the labour market, and June's inflation figures, due next week.
