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GBP sinks after UK economy shows biggest drop in 40 years

June 30, 2020 12:30

UK economy shrinks

The UK economy shrank at a much larger rate for the first quarter of 2020 than previously thought. Gross Domestic Product (GDP) - a measure of the size and health of a country's economy - contracted 2.2% in what is the largest fall since 1979.

As the Bank of England issued a dire warning of the UK economy, stating the slump this year could be the worst in three centuries, figures also revealed a surge in household savings with spending collapsing by the largest amount since records began.

The Office for National Statistics also released monthly figures showing that the economy plummeted by 20.4% in April which is the largest single monthly drop since records began. Worryingly for many economists is that the contraction in GDP data for the first quarter of 2020, only represented nine days of the lockdown period.

Investors will be keen to hear Boris Johnson's keynote speech on the economy with a promise to spend big on infrastructure in what he calls a "new deal". Whether the £5 billion of spending will be received well by investors or not is still to be determined.

The British pound has been one of the weakest currencies in the past month, with EURGBP moving to a thirteen-week high and GBPUSD sinking to a five-week low.

GBPUSD Chart

Source: Admiral Markets MetaTrader 5, GBPUSD, Daily - Data range: from 26 November 2019 to 30 June 2020. Please note: Past performance is not a reliable indicator of future results.

EURGBP five-year performance: 2019 = -5.92%, 2018 = +1.14%, 2017 = +4.22%, 2016 = +15.60%, 2015 = -5.07%.



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