Weekly Market Update 12/07/2024
The UK economy experienced strong growth in May, with GDP up 0.4% according to data from the Office for National Statistics, double the expected figure from Reuters. This strong growth was driven by a rebound in housebuilding and continued expansion in services. This could complicate the Bank of England’s decision of when to start cutting interest rates from their 16 year high of 5.25%, as the strength of services could keep CPI inflation too high to cut rates.
Off the back of the higher-than-expected GDP figure, Sterling rose to its highest level against the dollar in almost a year on Thursday. The pound also benefited from lower-than-expected US inflation in June, and the pressure on the euro from the resulting French hung parliament. Traders are now fifty-fifty on the likelihood of a BoE rate cut next month, although BoE chief economist Huw Pill has suggested he is not yet ready to change his vote in favour of a rate cut.
The second round of voting in the French general election ended in a historic hung parliament – no election in postwar France has resulted in an uncertain outcome with no clear governing party. Emmanuel Macron’s centrists are struggling to form a coalition, as their members seem divided over what coalition strategy to pursue and also as potential allies have so far rebuffed their offer to help form a government. Uncertainty therefore reigns as the negotiations continue, which is likely to result in further market volatility in the weeks ahead.
Andrea Wood, Chartered MCSI
Investment Manager
