The GBP AUD exchange rate was largely unchanged on Monday despite a weaker GDP growth figure from the UK economy. The latest figure, a second straight monthly drop, will put pressure on the Bank of England when they meet this Thursday.
The GBP to AUD rate was trading at 1.7466 ahead of the latest economic data.
British GDP growth drops unexpectedly in latest data
The UK economy unexpectedly shrank in the latest figures from the Office for National Statistics.
Growth was expected to be 0.4% for the latest three-month period but was only 0.2%. The monthly figure dropped by 0.3% with analysts expecting 0.1% growth. The figures showed a second consecutive monthly decline.
Part of the reason for the drop was an end to the UK’s Test and Trace system which had artificially boosted the economy with a rise in health services activity in previous months.
ING analyst James Smith said:
“Free Covid-19 testing stopped the previous month and according to the ONS that meant there was a 70% fall in test and trace activity. Pandemic-related health spending shaved a full 0.5 percentage points off GDP growth in April.”
“And if we strip that out, the headline 0.3% decline in monthly GDP should actually have been marginally into growth territory.”
The UK will have the latest employment figures released tomorrow with a further 105k expected. The unemployment level is also expected to drop to 3.6% from 3.7%. The Bank of England meets Thursday and will have a dilemma on further rate increases as the outlook for the economy worsens.
Hopes for Australia and China relations after recent meeting
Australian and Chinese officials met over the last week. There are hopes that it could lead to a thawing of relations after the frosty exchanges during the Morrison leadership.
The meeting put an end to a two-year diplomatic freeze between the two nations and ended with a meeting between Defence Minister Richard Marles and Chinese General Wei Fenghe.
The Australian dollar is closely tied to the Chinese economy. Last year’s harsh exchanges between the two sides dented the strength of the Aussie.
Marles called the meeting a “frank and full exchange” between the two sides after recent military incursions into Australian waters.
“It was a critical first step. Australia and China’s relationship is complex and it’s precisely because of this complexity that it is really important that we are engaging in dialogue right now.”
The Albanese government has taken over and wants to criticise the previous government. However, strikes in the public sector and disgruntled unions won’t wait. The Electrical Trades Union is the latest body to request changes with a call for a 6% increase in the minimum wage. Like the UK, inflation is dragging down real wage growth and could lead to further unrest in the future if inflation holds up.
“It’s going to require significant campaigns from us in our organised sectors… in terms of commercial construction, the power industry, that’s what we are looking at,” said national secretary Michael Wright.
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