Pound sterling (GBP) drops to five-month low after UK GDP slumps

The pound eased in afternoon trading today, following a disappointing second estimate of first-quarter GDP growth from the Office for National Statistics (ONS).

Sterling was down 0.31 per cent to trade at $1.3339 against the dollar, its lowest level since mid-December last year.

Read more: UK GDP: Economy suffers worst rate of growth in six years

Lukman Otunuga, Research Analyst at FXTM said:

“This has already been a terrible trading week for the pound, as cooling inflation figures dented expectations over the Bank of England raising UK interest rates in August.

“Matters worsened on Friday following reports that UK economic growth dropped to its lowest rate since 2012.”

Figures from the ONS showed that UK GDP grew just 0.1 per cent in the first three months of the year, a sharp drop from the 0.4 per cent growth seen in the final quarter of 2017.

Read more: As UK growth slumps, US GDP leaps past expectations

ONS figures also showed that GDP per capita shrank by 0.1 per cent between the fourth quarter of 2017 and the first three months of this year.

The country’s economic growth was heavily weighed down by a 2.7 per cent drop in construction output and a 0.2 decrease in business investment.

Household spending grew by just 0.2 per cent, the lowest growth since 2015.

The ONS warned of a “pattern of slowing growth, in part reflecting a slowing in the growth of consumer-facing industries”.

​John Hawksworth, chief economist at PwC, said: “Overall, the figures confirm the view that UK growth was subdued in the first quarter, though we continue to believe that this overstates the underlying weakness of the economy, bearing in mind the strong jobs growth we’ve seen.”

The dollar was steady against a basket of major currencies this morning ahead of the upcoming speech from Federal Reserve chair Jerome Powell.