Sterling Reacts Cautiously to Strong UK Economic Growth, MUFG Analyst Says

Sterling's Cautious Response to UK's Q1 Economic Growth Data

Sterling's muted reaction to the UK's first-quarter economic growth data suggests a cautious interpretation of the figures, according to Derek Halpenny, an analyst at MUFG Bank. The UK economy grew by 0.7% in Q1, a notable increase from the 0.1% growth seen in the previous quarter. While the data initially appears promising, Halpenny points out that much of the growth was driven by the volatile business investment component, which could lead to instability in the future. This factor has prompted caution among investors, who may be hesitant to fully embrace the positive numbers from the first quarter.

Furthermore, with the ongoing threat of weaker economic growth due to U.S. tariffs, the Bank of England is likely to continue with its strategy of gradual interest rate cuts to support the economy. Despite the cautious outlook, Sterling rose by 0.2% against the dollar as the greenback weakened, though it fell against the euro, which increased by 0.1% to 0.8433 pounds.

In conclusion, while the UK’s economic growth in Q1 provides some positive momentum, concerns over volatility in business investment and external trade risks, such as the impact of U.S. tariffs, are likely to keep investors cautious moving forward.