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>>GBP/USD currency update: stagflation risks intensify after flat UK GDP figures – BBH analysis

GBP/USD currency update: stagflation risks intensify after flat UK GDP figures – BBH analysis

crypthub

1 day ago

Stagflation Threat

Latest ONS data shows UK GDP flat for two quarters, while CPI stays above the BoE’s 2% target. BBH economists warn that stagnant growth combined with 4‑5% inflation signals rising stagflation risk. The pound has fallen 2.3% against the dollar in the past month as investors price lower rate‑rise expectations.

Economic Context

Flat GDP, core inflation at 4.2%, a 1.8% drop in manufacturing output and near‑record low consumer confidence mirror 1970s stagflation but are driven by post‑pandemic supply bottlenecks and geopolitical tensions. Unemployment is steady at 4.3%, limiting fiscal stimulus options. Traditional monetary tools lose effectiveness when higher rates could choke growth further.

Market Implications

GBP/USD trading volume surged 35% after the GDP release, with technical support around 1.2500 and the 200‑day average at 1.2750. Capital outflows and rising demand for protective options have pushed investors toward the dollar. Hedge funds are trimming pound exposure and seeking safe‑haven assets such as gold, which is up 8% YTD.

Policy Outlook

BoE Governor Andrew Bailey calls the path “narrow,” and the MPC now expects only one more rate hike in 2025, down from three previously forecast. Lower rate expectations weaken the pound, while forward guidance becomes crucial for market stability. Analysts advise monitoring upcoming inflation reports and BoE statements for further direction.