The UK economy just hit a wall 🧱 With GDP coming in at a flat 0% for July, the path forward is anything but clear. We've just published a quick breakdown of what this stagnation means for the pound and the key events that will likely drive market movement next week.
Key Takeaway's:
The European Central Bank (ECB)
The ECB has signaled that its period of reducing interest rates has concluded. This suggests that further rate cuts are not anticipated in the immediate future.
The UK Economy
The UK economy showed no growth in July, indicating a period of stagnation. This lack of expansion highlights the current challenges facing the British economy.
Market Recap
European Central Bank Signals End of Rate Cuts
The euro strengthened following the recent ECB meeting, where President Christine Lagarde indicated that the disinflationary phase is now complete. This statement led markets to scale back expectations for further interest rate cuts, solidifying the view that the ECB's easing cycle has come to an end for the time being.
US Dollar Weakens on Economic Data
The US dollar faced downward pressure after a higher-than-expected jobless claims report. This data point reinforced market convictions that the Federal Reserve will proceed with three interest rate cuts this year. Despite this, the dollar's decline was tempered, as major currency pairs like GBP/USD and EUR/USD remained capped by previous resistance levels. Consumer Price Index (CPI) figures, released concurrently, were largely in line with forecasts, with only the month-over-month number showing a slight increase.
Sterling Rallies on Equity Market Strength
The British pound saw a late boost, tracking a rally in equity markets that continued their upward momentum.
Today's Overview:
UK Economy Stalls in July, Pound Remains Cautious
The latest UK GDP figures for July, which came in at 0% as anticipated, paint a picture of an economy in a holding pattern. This flat reading means the British economy neither expanded nor contracted, marking a static start to the third quarter.
What This Means:
Stagnation: Zero growth indicates a lack of momentum in the economy. This is a concern for policymakers as it signals a slow start to the second half of the year, especially with ongoing challenges such as tariff pressures and the prospect of future tax increases.
Muted Currency Moves: The lack of surprise in the GDP data has led to a quiet day for the British pound (GBP). Traders are holding back on major moves, instead focusing their attention on crucial upcoming events.
Looking Ahead: Market focus is now squarely on next week's key economic releases. Upcoming data on UK jobs and inflation, along with the Bank of England's policy meeting, will provide more clarity on the health of the economy and the potential direction of interest rates. These events are expected to be the real drivers of GBP's performance in the short term.
12th September 2025
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