The pound-dollar pair is trading in a fairly narrow range of 1.3460–1.3530, reacting impulsively to the current news flow. The data published on the UK economy's growth did not change the situation—the pound remains within the specified price range, reflecting indecision among both buyers and sellers of GBP/USD.
Looking ahead, it should be noted that the British economy continued to grow in the second quarter, but the pace of growth slowed noticeably, and the growth structure remains quite uneven. The services sector remains the main pillar, while industry as a whole is stagnating, construction has practically halted (after a strong start to the year), and the external sector continues to be the "weak link."
So, according to the released data, UK GDP grew by 0.4% quarter-on-quarter in the second quarter, after a 0.6% increase in the previous reporting period. In year-on-year terms, the country's economy grew by 1.2%. GDP per capita also increased—by 0.4% for the quarter and by 1.0% year-on-year.
In other words, there is no basis to speak of stagnation or (even more so) a recession of the British economy. Moreover, the second quarter of the current year became the seventh consecutive three-month period of growth. But on the other hand, the growth dynamics are clearly losing momentum. Judge for yourself: +0.8% over the three months to April, 0.6% to May, and 0.4% to June.
At the same time, in June itself the British economy grew by 0.3% month-on-month, after zero growth in May and a 0.1% decline in April. Thus, the second quarter ended with an acceleration, whereas most analysts expected to see a zero result—as in the previous month.
The structure of the monthly report shows that services grew by 0.4%, while production decreased by 0.2% and construction by 0.1%. As we can see, June's result was again effectively driven by services. In essence, this is becoming a characteristic feature of the British economy: the external and industrial sectors look significantly weaker than the domestic services sector.
Returning to the quarterly data, one interesting point is that the recorded industrial stagnation does not indicate a complete absence of manufacturing momentum. On the contrary, manufacturing showed a fairly decent quarterly result. The problem is that this growth is "eaten up" by the energy and utilities sector. At the same time, extractive industries grew by 5.1%. This partially offset the decline of the other components.
In other words, industry is indeed not a source of acceleration for the British economy—but it is still too early to speak of a deep industrial downturn.
Against this backdrop, the construction sector appears noticeably weaker, with far less stable dynamics. For example, in June construction fell by 0.3%. The sharpest decline was observed in the segment of new construction of public facilities (-11%). This result was the worst in the housing segment, significantly exceeding the contraction in the private construction sector. Among the reasons is a sharp reduction (by as much as 75%) in new public and communal projects (including local infrastructure). The number of general contracts signed fell by 64%.
As a result, the construction sector, which had been one of the drivers of recovery earlier in the year, had by the end of the second quarter almost ceased to support the economy.
As already mentioned above, services remain the main engine of the British economy. This sector provided the bulk of the quarterly GDP gain. Growth was distributed quite broadly: in the three months, positive dynamics were recorded in 10 of 14 subsectors. Among them, the strongest dynamics were shown by information and communication services (primarily software development), professional, scientific and technical activities, as well as transport and warehousing.
Overall, if we sum up all the "pros" and "cons", the report published on Thursday contains both positives and negatives. On the one hand, UK GDP is growing for the second consecutive quarter, and June's result was relatively strong. GDP per capita increased, and services continue to expand confidently. On the other hand, quarterly economic growth has slowed, industry as a whole is stagnating, construction is weakening, and the trade deficit remains quite significant.
Therefore, the latest report is unlikely to force the Bank of England to change its current course. The economy is strong enough not to require emergency stimulus, but not strong enough to make the central bank abandon further easing of monetary policy.
Therefore, for this reason, the pound ignored the release. After falling by only 20 pips, the GBP/USD pair returned to previous levels within a few hours. Figuratively speaking, the above-mentioned pros and cons of the report "balanced" each other, so traders of the pair preferred to take a cautious position, awaiting the U.S. PPI and the resolution of the next stage of negotiations between the U.S. and Iran. In such conditions, in my opinion, it is advisable to consider range trading within the above-mentioned price range of 1.3460–1.3530.
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