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09.08.2019 10:47 AMAccording to the first reading, second-quarter GDP contracted 0.2% following 0.5% growth in the first quarter. The reading was also below consensus forecasts of 0.0%. Year-on-year growth also slowed to 1.2% from 1.8% and below expectations of 1.4%. This was the first quarterly contraction since 2012.
Monthly industrial production declined marginally by 0.1% for June with an annual decline of 0.6% while manufacturing output dropped 1.4% over the year.
Business investment worsened for the quarter while a construction output fell in June. The only bright spot was a sharp narrowing of the trade deficit for June.
Markets expected a weak figure for the second quarter, but contraction of 0.2% will further erode market sentiment towards the economy.
In an immediate response, GBP/USD dipped just below 1.2100 not far from 34-month lows with EUR/GBP approaching 0.9250.
Political uncertainty is denting sterling's confidence with a strong market focus on the October 31st Brexit deadline.
Foreign Minister Raab reiterated that the UK would leave the EU on WTO terms if the EU refused to show flexibility on re-negotiation.
Market participants are speculating that if the government lost a no-confidence vote it would call for a General Election just after October 31st in order to secure a 'no-deal' Brexit while the parliament was not sitting.
Opposition parties continue their attempts to block such a policy and political tensions will intensify. Unless there is evidence of the UK or EU governments back-tracking and offering compromises, the sterling will remain vulnerable on political grounds.
A soft dollar tone will provide an element of GBP/USD protection and selling offers little immediate value, especially with a weak reading priced in, but there will be further selling interest on rallies.
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