GBP/USD: Sterling Hits Sell Wall at $1.36 as UK Economy Shrinks 0.3% in April

Pound shot lower by about 40 pips moments after the data dropped — it’s the steepest monthly slide since 2023 and it’s a blow to Rachel Reeves economic agenda.

⚠️ UK GDP Hits Sentiment

• The GBPUSD pair slid to $1.3560 from $1.36 shortly after April’s GDP figures revealed a surprise monthly contraction of 0.3% — the steepest drop since 2023.
• Economists had forecast a much smaller 0.1% dip, but the sharp pullback exposed the fragility of the UK's challenging recovery, especially in the face of global uncertainty and local political pressures (tariffs, of course).
• Chancellor Rachel Reeves acknowledged the miss, saying the figures were “clearly disappointing,” but reaffirmed her commitment to pushing growth forward.

👀 Major Economic Test

• The economic stumble is a setback for Reeves’ agenda to revive investment and productivity in Britain. While Q1 growth came in at a solid 0.7%, the momentum clearly didn’t last into April — the month Trump introduced his hostile tariffs.
• The data puts added pressure on fiscal strategy, especially as the Chancellor aims to balance spending discipline with policies that boost long-term output.
• Investors will now watch closely for any policy tweaks, particularly as economic headwinds mount and public confidence becomes a political concern.

📜 Rates Steady at 4.25%?

• Thursday’s data bolsters expectations that the Bank of England will pause rate cuts next week, keeping the benchmark at 4.25%.
• Markets are pricing in a more cautious stance from the central bank after four cuts since mid-2024, particularly with inflation still sticky and the pound under short-term pressure.
• While today's GDP dip might support further easing later this year, the BoE is unlikely to act until it sees a consistent slowdown — not just a blip. In the long-run, however, the pound’s performance ain’t too shabby — up 10% in the past five months.