Pound Falls As U.K. Economy Contracts For Second Straight Month

(RTTNews) - The British pound weakened against other major currencies in the European session on Friday, as the UK economy shrank for the second consecutive month in May, adding challenges to Chancellor Rachel Reeves in achieving her self-imposed borrowing rules.

Some economists anticipate that the weak U.K. GDP data suggests that the Bank of England (BOE) is likely to cut interest rates in its next monetary policy meeting held on August 7, 2025.

Data from the Office for National Statistics showed that Gross domestic product fell unexpectedly by 0.1 percent in May, following a 0.3 percent drop in April.

GDP was forecast to grow 0.1 percent. Moreover, this was the second straight month of decline.

Among three main sectors, industrial production was the largest contributor to the monthly GDP fall, which was down 0.9 percent. Production declined 0.6 percent in April and 0.2 percent in March.

The monthly fall in manufacturing output deepened to 1.0 percent, the worst since July 2024, from 0.7 percent in April, data showed. Production of motor vehicles and trailers declined 3.7 percent largely reflecting the impact of US tariffs.

Construction output fell 0.6 percent in May. These declines in production and construction were partially offset by an increase of 0.1 percent in services output. Another data from the ONS showed that the visible trade deficit narrowed to GBP 21.7 billion in May from GBP 22.4 billion in the previous month. At the same time, the surplus on services trade increased to GBP 15.99 billion from GBP 15.9 billion a month ago.

As a result, the total trade balance showed a deficit of GBP 5.7 billion, which was below April's GBP 6.5 billion deficit.

European shares traded lower as U.S. President Donald Trump amped up trade threats, fueling uncertainties around the inflation and growth outlook.

Trump announced a 35 percent tariff on Canadian goods, effective August 1, and warned of a blanket tariff of 15-20 percent on most trading partners that have not received letters yet.

Trump also said he would make an announcement regarding Russia, raising the prospect of more sanctions on the major oil producer.

In the European trading today, the pound fell to an 8-day low of 0.8653 against the euro, nearly a 3-week low of 1.3510 against the U.S. dollar and a 9-day low of 1.0760 against the Swiss franc, from an early highs of 0.8609, 1.3582 and 1.0823, respectively. If the pound extends its downtrend, it is likely to find support around 0.88 against the euro, 1.33 against the greenback and 1.06 against the franc.

Against the yen, the pound slipped to a 4-day low of 198.24 from an early 2-day high of 199.45. The pound is likely to find support around the 195.00 region.

Looking ahead, U.K. NIESR monthly GDP tracker for June, Canada jobs data for June, building permits for May, U.S. Baker Hughes oil rig count data, U.S. WASDE report and U.S. monthly budget statement for June are slated for release in the New York session.