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This morning's GDP release followed hot on the heels of the government's spending review. Editorial credit: William Barton, via Shutterstock.
The UK economy contracted by 0.3% month-on-month in April, according to Office for National Statistics (ONS) data. Subdued services output and weaker production helped drive the fall, which came after a series of surprisingly strong performances to start the year.
Slightly awkward timing, as it was just yesterday that UK Chancellor Rachel Reeves announced a 3% boost to the NHS budget and £39bn for affordable homes over the next decade. These plans formed part of the government’s much anticipated spending review, which combined capital outlays on energy and infrastructure projects (funded in part by relaxed fiscal rules) with real-term spending cuts to key departments.
Sterling did not seem to be materially affected by this major announcement. GBP/EUR moved by barely two tenths of a cent across Wednesday, while GBP/USD’s sudden half-cent bounce came as the direct result of surprisingly cool inflation data out of the United States.
The UK spending review should not be mistaken for a budget, a distinction which allowed the Labour government to outline its spending priorities rather than waste airtime detailing how it would pay for them. Nevertheless, much of the immediate reaction centred around the cost of its plans. Given the tight fiscal headroom that accompanied the spring budget, some experts argued that tax rises would have to be announced to meet a looming shortfall.
Away from the world of Westminster, it was a largely calm and settled day across major markets. US officials claimed a breakthrough in their efforts to forge a trade reset with China after high-level talks in London this week.
Gold has outstripped the euro as the second most common reserve asset for central banks around the world, according to the European Central Bank (ECB). With the price of gold seemingly setting a fresh peak every week, around 20% of central bank assets are now composed of bullion compared to 16% in euros.
Finally, Elon Musk has now said he regrets “some” of his part in the extraordinary public spat between himself and President Donald Trump. The former DOGE leader had engaged in a fierce war of words over Trump’s “Big, Beautiful Bill” that helped wipe out more than $150bn from Tesla’s valuation.
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GBP: Spending review masks tough choices
The chancellor put on a brave face in parliament yesterday, but there was no mistaking the difficult decisions that ran through the spending review. Funding for defence, health and infrastructure is badly needed. The issue for sterling is that choosing to fund these areas could require more tax revenue and draw funds away from other vital departments.
GBP/USD: the past year
EUR: Euro picks up steam
With attention trained on the pound and US dollar, EUR/USD gained more momentum and pushed towards its highest level in a week. The euro continues to pick up steam despite the far lower interest rates set by the ECB.
GBP/EUR: the past year
USD: Energy helps contain inflation
Consumer Price Inflation (CPI) rose from 2.3% to 2.4% in May but came in below the 2.5% figure most analysts predicted – the result mainly of cheaper oil and gas costs. This news contributed to the US dollar’s daily losses of half a cent against the pound and almost a full cent against the euro.
EUR/USD: the past year
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