The pound rose on Friday after data showed Britain’s economy beat expectations in the first quarter of the year, growing 0.6% and emerging from the mild recession forecast for 2023.
Sterling rose 0.1% to $1.2537, having traded as high as $1.2516 before the figures were released. The pound is slightly higher so far in May, but has fallen 1.5% this year as the dollar rises due to a strong US economy.
Data from the Office for National Statistics showed that Britain’s economic output increased by 0.6% between January and March, compared to the previous quarter, which was higher than forecast. A Reuters poll of economists had indicated an expansion of 0.4%.
“The UK economy has started the year with a bang,” said Henry Cook, senior economist at lender MUFG. “The recession is firmly in the rearview mirror.
The euro lost 0.1% against the pound, to 86.04 pence.
The Bank of England on Thursday kept interest rates at 5.25%, their highest level in 16 years, but noted inflation was moving in the right direction, while a deputy governor voted in favor of a rate cut, both signs that borrowing costs may well start to fall during the second or third quarter.
Inflation slowed to 3.2% in March, following a peak of 11.1% in October 2022. The next data is expected on May 22.
“Today’s figures may give the BoE some time to think, but the focus will remain on key upcoming data on inflation and wage growth,” Mr Cook said.
“Provided this data is moving in the right direction, today’s good news on economic activity, taken in isolation, is unlikely to derail initial monetary easing.”
The pound rose 0.2% on Thursday after U.S. data showed weekly jobless claims rose more than expected last week, adding to signs the country’s labor market is weakening and the Federal Reserve is likely to cut rates this year.
However, the dollar remains up around 3.9% in 2024 thanks to strong US growth. The dollar index, which tracks the currency’s performance against six other currencies, was stable at 105.23.
