UK GDP Preview: Reminder of past weakness to trigger a much-needed correction in GBP/USD

The UK is set to report a contraction of 1.7% in its output in the first quarter, due to its lockdown and also Brexit. The data may trigger a much-needed correction in GBP/USD, Yohay Elam, an Analyst at FXStreet, reports.

The chance of an upside surprise is minimal

“The government took the first steps to exit these measures only in early March, and that is why economists expect economic output to drop by 1.7% quarterly. It is essential to note that these estimates are based on monthly GDP figures for January and February, thus including the worst period.”

“It would probably take a substantial beat of expectations to add fuel to sterling's rally. If the economy contracted by only 1%, or shocks by growing in the first quarter, the pound could rise. Conversely, a squeeze of over 2% or 2.5% would result in a more significant downside correction.” 

“Apart from showing markets that Britain struggled with the lockdown, the data could also serve as a reminder of Brexit. The UK's EU exit has been causing additional paperwork for goods and has also left unresolved issues. Growth figures would serve as a reminder and as a reality check of these lingering issues.”