British economy continues to face high inflation

The most recent UK economic figures are among the busiest of the year. While the consumer confidence survey findings increased, indicating an economic resurgence after fears that Britain may enter a recession.

Although the GfK British consumer confidence poll for the next 12 months remains low, it has just hit its highest level in 15 months since February last year. Despite rising living costs, consumers are becoming more positive about their finances and the overall economy.

Furthermore, according to the UK S&P Global/CIPS Composite Purchasing Managers' Index (Composite PMI), production cost inflation has grown at its weakest rate in more than two years. This was driven by the services sector in consumer spending on travel, leisure and entertainment, while the manufacturing sector remains weak.

Fresh food inflation in the UK fell to 17.3% in the four weeks to April 16, but remained close to a record 17.5% in March, with a propensity to rise again.

Overall consumer price inflation declined to 10.1% in March, but food and non-alcoholic beverages soared by 19.1% year on year. It was the highest gain since August 1977, while the British Retail Consortium, which represents the major British grocery chains, predicts that consumer food costs will continue to fall in the following months.

Overall inflation is expected to fall below 4% by the end of the year, according to the Bank of England. The Bank of England forecasted slight economic growth in the second quarter of 2023 last month, but it still forecast a decline in the first quarter of this year.

Analysts, therefore, still expect the Bank of England to raise borrowing costs for the 12th time in a row at its May meeting. Despite the International Monetary Fund (IMF) anticipating a 0.3% contraction in the UK economy in 2023, a less severe impact than previously expected, the UK economy will still contract the most among major economies.

However, the government's fiscal support for home and business energy expenses increased the UK budget deficit for the fiscal year 2022/23 to its fourth-highest level. The Office for National Statistics (ONS) reported borrowing of £139.2 billion, or 5.5% of GDP, in the fiscal year ending March, up from £121.1 billion, or 5.2% of GDP, in 2021/22.

The US dollar currency pair rose slightly on Tuesday on expectations that the Fed will raise interest rates another 25 basis points at its policy meeting next week and may begin to cut rates later this year due to signs of a slowdown in the US economy and the banking and finance sectors remaining fragile.

The pound may tend to strengthen against the US dollar as a result of high food prices and the possibility of another BoE rate hike next week if US first-quarter GDP data due out on Thursday shows a slowing economy and PCE price indexes due out on Friday are lower or in line with forecasts.

Data for Technical Analysis (5H) CFD GBP/USD

Resistance : 1.2465, 1.2478, 1.2498

Support : 1.2425, 1.2412, 1.2392

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.2417 - 1.2425 is touched, but the support at 1.2425 cannot be broken, the TP may be set around 1.2465 and the SL around 1.2413, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2465 - 1.2473, TP may be set around 1.2488 and SL around 1.2420, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2465 - 1.2473 is touched, but the resistance 1.2465 cannot be broken, the TP may be set around 1.2418 and the SL around 1.2477, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2417 - 1.2425, TP may be set around 1.2400 and SL around 1.2470, or up to the risk appetite.       

Pivot Points Apr 25, 2023 12:06PM GMT

Sources: Investing 1, Investing 2