UK Q2 Gross Domestic Product Preview: No growth expected, GBP could keep falling

• United Kingdom’s Gross Domestic Product is expected to show no growth in Q2 2023.
• Bank of England expects the UK GDP to expand by 0.5% this year.
• Pound Sterling could resume a downtrend on weak UK growth figures.

The United Kingdom’s Office of National Statistics (ONS) will publish the first release of the UK’s Gross Domestic Product (GDP) for the second quarter of the year on Friday, August 11, which is expected to remain stuck.

At its August policy meeting, the Bank of England (BoE) did not forecast a recession for the United Kingdom while raising rates by 25 basis points (bps) to 5.25%. The BoE’s non-committal stance on the future interest rate path disappointed Pound Sterling bulls.

Will the preliminary release of the UK second quarter Gross Domestic Product help reinforce buying interest around the Pound Sterling?

What to expect in the next UK GDP report?

The British economy grew minimally by 0.1% in the first quarter of this year matching the preliminary estimate. For the second quarter, the United Kingdom GDP is seen showing no growth on a quarterly basis. Annually, the UK economy is seen expanding 0.2% in Q1, at the same pace as seen in the previous quarter. Meanwhile, the June month GDP is expected to increase by 0.2%, having contracted 0.1% in May.

The central bank revised its economic growth forecasts last week, now predicting that the UK economy to post a modest growth of 0.1% in Q2 2023 against the June forecasts of no growth. The Bank expects the economy to expand 0.5% this year vs. a 0.25% expansion seen in the previous projections.

Speaking at the post-meeting press conference, BoE Governor Andrew Bailey said "economy is more resilient, I would not use words like 'pain' to describe policy impact." "We hope we can deliver the path we expect with no recession, we will have to see, Bailey added.

Meanwhile, the National Institute of Economic and Social Research (NIESR) said in its main forecast on Wednesday that the UK economy will avoid a recession in 2023 but there is still a "60 percent risk" of a recession at the end of 2024.

Last month, the International Monetary Fund (IMF) projected Britain's economy to grow 0.4% this year and 1.0% in 2024.

When will the UK Gross Domestic Product report be released and how could it affect GBP/USD?

The Office for National Statistics will publish the UK GDP data at 06:00 GMT on Friday, August 11. Heading toward the high-impact economic release from the United Kingdom, the market’s positioning shows that the BoE's key interest rate could peak below 5.70% by March, only a small change from expectations in the run-up to the August policy meeting but down from above 6.0% just a month ago.

The Pound Sterling (GBP) is struggling below the 1.2800 round level against the US Dollar, holding its corrective decline from 15-month highs of 1.3142 set last month. Increased bets for a Fed rate hike pause against more tightening expected from the BoE are helping keep the GBP/USD pair somewhat afloat.  

A stronger-than-expected GDP print is likely to rekindle the hawkish BoE interest rate outlook, triggering a fresh upswing in the Pound Sterling. GBP/USD could resume its correction toward the previous week’s low of 1.2620 in case the data signals an incoming recession in the UK economy.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “The GBP/USD pair failed to find acceptance above the mildly bullish 50-Day Simple Moving Average (SMA) at 1.2764, as the 14-day Relative Strength Index (RSI) continues to hold ground below the midline. The UK GDP data holds the key for the near-term direction in the currency pair.”

Dhwani also outlines important technical levels to trade the GBP/USD pair: “On the downside, immediate support awaits at the August 3 low pf 1.2620, below which the upward-sloping 100-day SMA at 1.2606 will be tested. The additional decline will open floors toward the 1.2550 psychological level. Conversely, the pair needs to find a strong foothold above the 50-day SMA to initiate a fresh uptrend. The next relevant hurdle for Pound Sterling buyers is seen at the bearish 21-day SMA of 1.2837.”