UK Economic Slowdown Deepens
In May, the UK economy showed marginal growth of just 0.1%, underperforming market expectations and following a 0.3% contraction in April. Industrial output declined sharply by 0.9% month-over-month, against expectations for a modest decrease of 0.1%, and year-on-year figures dropped by 0.3% instead of the anticipated modest increase. The construction sector similarly contracted by 0.6%, underscoring vulnerabilities across key economic segments.
Additionally, June GDP forecasts by the National Institute of Economic and Social Research (NIESR) indicate limited recovery, predicting only a 0.2% growth, significantly below initial projections of 0.4%.
Public Debt Warning from UK's Budget Responsibility Office
The Office for Budget Responsibility (OBR) has issued a stark warning regarding UK’s escalating public debt, highlighting its approach towards a critical 100% of GDP level—a threshold last crossed in the early 1960s. With pension funds significantly reducing bond purchases, increased debt servicing costs pose significant risks, potentially spiraling national debt towards 270% of GDP over the next five decades without proactive fiscal intervention.
Inflation and Monetary Policy Outlook
Markets now look ahead to Wednesday’s UK inflation report (08:00 GMT+2). Consumer Price Index (CPI) and core CPI are expected to remain stable at 3.4% and 3.5%, respectively. Despite high inflation figures, analysts suggest these levels might not deter the Bank of England from potential interest rate cuts, aiming to stimulate economic growth amid broader market uncertainty.
In contrast, US CPI data expected tomorrow at 14:30 (GMT+2) may confirm increased monthly inflation rates from 0.1% to 0.3% and annual CPI growth from 2.4% to 2.6%. Core inflation is similarly expected to rise from 2.8% to 2.9% annually. Additionally, the NY Fed’s Manufacturing Index might improve slightly from –16.0 points to –10.1 points, providing moderate short-term support to USD.
GBP/USD Technical Outlook and Key Levels
On the daily chart, GBP/USD reflects uncertainty and bearish sentiment, with Bollinger Bands flattening despite recent bearish impulses. MACD remains strongly bearish, positioned below the signal line and approaching a test of the zero level, indicating potential further downside momentum. Stochastic suggests a near-oversold condition, hovering around the 20-mark, signaling possible short-term corrections.
- Resistance Levels: 1.3500, 1.3562, 1.3600, 1.3632
- Support Levels: 1.3450, 1.3400, 1.3340, 1.3300
Trading Recommendations for GBP/USD
Short scenario: Open SELL STOP positions below 1.3450 with a target at 1.3340 and Stop Loss at 1.3500. Duration: 2–3 days.
Alternative bullish scenario: Consider BUY STOP orders above 1.3500, targeting 1.3600 with Stop Loss at 1.3450 if the price rebounds strongly above resistance.