Sterling falls below $1.27 after decline in British GDP

UK economy shrinks as car production slows

The pound fell below $1.27 after figures showed gross domestic product (GDP) in the UK had declined in April, increasing concerns about the health of the economy as Brexit uncertainty continues to drag.

The pound on Monday gave up earlier gains to trade 0.3 per cent lower in London against the dollar at $1.2692 following the release.

The data were worse than expected: the UK economy shrank 0.4 per cent in April on the previous month due to a “dramatic fall” in car production around the UK’s initial EU exit date of March 29th.

“The hangover that’s followed the UK’s original exit date is proving stronger than anticipated,” said Yael Selfin, chief economist at KPMG UK.


Manufacturing figures were also weak as an earlier boost from Brexit-related stockpiling faded.

“The wider growth story continues to look fairly bleak” even if some of the factors that weighed on the economy in April such as stockpiling and shutdowns prove temporary, said James Smith, an economist at ING. “All of this raises the possibility that growth could come in negative for the second quarter as a whole.”

Sterling, which has traded as a barometer of investors' Brexit expectations, lost more than 3 per cent of its value against the dollar in May when Theresa May resigned and started a Conservative leadership campaign after failing to force her Brexit deal through the House of Commons.

Boris Johnson, the frontrunner to replace Mrs May, is a Eurosceptic who has ruled out a further delay to the UK's departure from the bloc and said he would keep a no-deal Brexit option on the table. The latest deadline to leave is October 31st.

Nigel Green, the chief executive of deVere Group, said: “The pound will be delivered another bloody nose should Boris Johnson, the current frontrunner, win the race to be Tory leader and UK prime minister.” – Copyright The Financial Times Limited 2019