- Sterling slumped on Friday on weak GDP growth figures, dropping to $1.37
- Growth in the first three months of 2018 was far lower than expected
- Many believe it will stop the Bank of England from raising rates next week
The value of the pound plunged and bets on the Bank of England hiking interest rates were off today after official data revealed UK economic growth has stalled to its lowest rate in five years.
Sterling fell more than a cent to $1.37 after the Office for National Statistics released data that showed the UK economy grew by 0.1 per cent in the first three months of 2018.
The figure fell far below what analysts had expected and marked a significant drop on the 0.4 per cent growth seen in fourth quarter of 2017.
The value of the pound plunged on the back of disappointing GDP growth – it was at $1.37 against the US dollar after hitting a high of $1.43 last week
It sparked many to write off the chances of the Bank of England raising interest rates at the May meeting of the Monetary Policy Committee next week.
The likelihood of rates rising was at 50 per cent before the GDP data, but fell to just 20 per cent after the disappointing growth figures were published.
British government bond prices also jumped after the data and the yield on rate-sensitive two-year gilt fell to 0.843 percent.
Evidence of the shock slowdown in the early months of 2018 suggests high inflation and uncertainty surrounding the outcome of any Brexit deal may be having a bigger impact on the economy than first thought.
It marks the slowest pace of economic growth in the UK since the end of 2012.
The likelihood of the Bank of England raising rates fell while the prices of bonds jumped
The ONS said the UK’s cold snap, blamed by many retailers and service providers for poor results in the first quarter, had a ‘limited’ effect on the data.
Analysts had predicted growth of around 0.3 per cent in the first quarter of the year but have been left disappointed and worried by the apparent slowdown.
Ben Brettell, a senior economist at Hargreaves Lansdown said he had expected disappointing news on growth but that ‘what materialised was worse than feared’.
Mark Carney had already hinted that rates were not guaranteed to rise after the MPC’s May meeting
‘The question now is whether the slowdown can be fully attributed to the Beast from the East, or whether there are more worrying factors at play,’ he said.
Brettell added: ‘The news casts further doubt over a May interest rate rise.’
Last week Mark Carney first dealt a blow to hopes of a May hike when he softened his tone on future rate rises by saying economic data had been ‘mixed’ with retail sales ‘softer’ than expected.
He told the BBC: ‘Since the start of 2016 up until now we have seen much less investment than would have expected.
‘Unfortunately that means in the short term that the speed limit is not increasing.
‘Productivity is not increasing, which will limit the rate at which people’s wages can pick up.’