European session review: GBP weakens, as disappointing UK’s May GDP data diminish hopes for V-shaped recovery

GBP fell against its major counterparts in the European session on Tuesday as much-weaker-than-expected growth of the UK’s economy in May raised questions about the pace of the country’s economic recovery from the coronavirus pandemic.

The Office for National Statistics (ONS) reported that the UK's GDP grew 1.8 percent m/m in May, rebounding from a record 20.3 percent m/m tumble in April but missing economists' forecasts of a 5.5 percent m/m advance. According to the ONS, industrial production surged 6.0 percent m/m in May, following a 20.2 percent m/m fall in April. At the same time, manufacturing rose 8.4 percent m/m after a 24.4 percent m/m decrease in the previous month. Services output grew 0.9 percent m/m after contracting 18.9 percent m/m. Construction expanded 8.2 percent m/m in May after a record 40.2 percent m/m tumble a month ago.

In y/y terms, the UK's GDP plunged 24.0 percent in May, easing from a record 25.3 percent decline in April, while economists had forecast a 20.4 percent decline. In the three months to May, Britain's economy contracted 19.1 percent y/y, the most on record, following a 10.8 percent y/y fall in April. 

The weaker-than-anticipated May GDP data raised questions about the possibility of a V-shaped recovery of the UK's economy that many economists had been forecasting.

Meanwhile, a separate report from ONS revealed that the UK's trade deficit narrowed to GBP2.81 billion from GBP4.80 billion in April. Economists had forecast a gap of GBP8.10 billion. The country's exports of goods rose by 6.6 percent y/y, while imports dropped by 1.7 percent y/y.

Lingering risks of a no-deal Brexit also weighed on the British currency.