UK GDP Slide Fuels BoE Rate Cut Speculation Ahead of Key CPI Report; GBP/USD Dips

UK GDP Cracks in April: Will the BoE React?

A weaker-than-expected GDP print for April fueled hopes of a near-term Bank of England rate cut. April’s data came amid fresh warnings from economists of potential policy moves.

The economy expanded by 0.7% in the three months to April, matching growth in Q1 2025. Meanwhile, the economy grew by 0.9% year-on-year in April, down from 1.1% in Q1. However, a 0.3% contraction in April on a monthly basis highlighted growing cracks in the economy, potentially fueling speculation about monetary policy easing.

According to the Office for National Statistics:

• Monthly services output declined by 0.4% in April after growth of 0.4% in March, the largest contributor to the GDP fall in April. This was the first drop since October 2024.
• Production output fell 0.6%, following a 0.7% decline in March.
• Manufacturing output tumbled 0.9%, impacting headline production output trends.

Overall, the monthly data revealed deepening cracks in the UK economy, with services and production pressuring momentum.

 

Expert Reactions to April’s Data

On June 10, softer UK wage growth, declining HMRC payrolls, and a rising unemployment rate fueled expectations of a more dovish Bank of England rate stance. Still, economists anticipate no rate move at the June 19 meeting, keeping the base rate at 4.25%.

Michael Brown, senior research strategist at Pepperstone, remarked:

“The latest UK labor market data pointed to the employment situation continuing to weaken, though the BoE are still set to stand pat on policy next week.”

Today’s GDP data adds weight to the case for a near-term BoE rate cut. However, the upcoming UK inflation report on June 18 could prove pivotal. A sharp rise in headline inflation may force the BoE to keep rates steady for longer. Economists forecast the May data will show a rise from April’s 3.5% to 3.6%.

BoE Rate Path: A Dovish Turn Ahead?

Speculation over BoE rate cuts has intensified in recent sessions. According to the Reuters poll, conducted from June 5 to 10, economists expect the BoE to cut rates by 25 basis points in August, followed by another in Q4 2025, which would bring rates to 3.75%.

Market expectations have aligned with this view, pricing in two rate cuts by year-end. The final decision may hinge on next week’s inflation figures.

GBP/USD Reaction to April’s GDP Report

Before the UK GDP Report, the GBP/USD briefly dipped to a low of $1.35351 before climbing to a high of $1.35928.

However, in response to the report, the GBP/USD tumbled from $1.35880 to a low of $1.35556, reflecting expectations of a more dovish BoE stance.

On Thursday, June 12, the GBP/USD was up 0.18% to $1.35617.

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