UK GDP expected to expand, British pound lower

[Redator]

The British pound is lower on Thursday. In the North American session, GBP/USD is trading at 1.3534, down 0.36% on the day.

The UK releases May GDP on Friday, with the markets expecting a rebound of 0.1% m/m, following a 0.3% contraction in April, which was the first decline in six months and the sharpest drop since October 2023. The soft April GDP report was affected by some one-on factors; namely, the announcement of the US tariffs and an increase in employers' national insurance contributions.

OBR says UK economy on "unsustainable" path

It hasn't been a great run for the UK government. Last week, the government failed to reform welfare spending. On Tuesday, the Office for Budget Responsibility (OBR) delivered a scathing report of the state of the UK's public finances on Tuesday. The report sent the British pound as low as 1.3524 the same day, its lowest level since June 24.

The OBR warned that spending, borrowing and the size of the government debt were set to soar in the coming decades without a change in policy. The report said that the country's public finances were on an "unsustainable" long-term path and bluntly noted that the "UK cannot afford any of the promises it has made to the public".

The bleak report led to higher bond yields, as investors are demanding higher yields for holding UK debt. That should boost the pound, but at a certain point even higher rates won't be enough to attract investors if concerns worsen over the UK's fiscal outlook.

FOMC minutes - how fast to cut rates?

The FOMC minutes indicated a broad consensus that the Fed will deliver additional rate cuts this year. The pace of those cuts, however, is up for debate. Some members favored cutting as soon as the July meeting, while others were more cautious and wanted to see where inflation and employment were headed. President Trump's tariffs have not boosted inflation so far, but the tariff effect on inflation could be felt in the following months and the Fed remains cautious.

GBPUSD Technical

The UK releases May GDP on Friday, with the markets forecasting a small gain of 0.1%. The OBR said that the UK's public finances are on an "unsustainble" path in the long-term. The FOMC minutes were dovish but members are split on the the timing of the next rate cut.

GBPUSD 4-Hour Chart, July 10, 2025

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