The British pound rose to a 2 month high as the current account deficit narrowed from –GBP12.2B to –GBP8.4B in the first quarter. The improvement was hardly surprising given the better trade balance reports for the first three months of the year, but the detail of the report indicate that it was largely to due a decline in net overseas income. First quarter GDP was revised downwards due to weaker consumer spending and lower services output.
These numbers are in line with the Bank of England’s projections for slower growth and are what the central bank hopes will bring down inflation. In the week ahead, housing market indicators, service and manufacturing PMI reports are due for release. Given the rebound in the CBI industrial trends survey, manufacturing conditions may have actually improved this month. Activity in the service sector on the other hand should deteriorate if consumer confidence does not hold up. Retail sales last month were strong, but the CBI distributive trades survey is still negative, pointing to underlying weakness. Either way, with the GBP/USD trading above 1.99, there is a strong chance that we will see a retest of 2.0.