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Pound Unmoved by Strong Q2 GDP Growth, Inflation Fears Bite

LONDON, Sept 30 (Reuters) - Sterling steadied near a nine month low on Thursday amid concerns about British economic growth with inflation expected to jump as the country grapples with a fuel crisis.

Sterling was one of the strongest G10 currencies this year as investors bet the British economy would re-emerge faster from the pandemic thanks to Britain’s speedy vaccination programme. But that narrative has crumbled with sterling erasing all of its strong 2021 gains, down around eight cents since its June peak.

Data showing gross domestic product increased by 5.5% in the second quarter, more than previously thought, did little to cheer sterling investors.

The pound was flat versus the dollar at $1.3431 by 0845 GMT, not far from nine-month lows touched the previous day. Versus the euro, the pound flattened at 86.36 pence, near a two months low hit on Wednesday.

“The GBP is probably overreacting to the deepening of the energy and fuel crisis,” Unicredit analysts said in a note. “We expect the GBP to recover on prospects of higher rates at home, but this is unlikely to occur easily in the very near term.”

Gas station pumps ran dry in British cities this week, with vendors rationing sales as a shortage of truckers strained supply chains.

Bank of England Governor Andrew Bailey said on Wednesday he expected Britain’s economy to recover its pre-pandemic level of output early next year, a little later than the central bank had predicted last month.

“This seems at odds with some speculation that the BoE could hike as early as November,” said ING’s Chris Turner, Global Head of Markets.

People in Britain have turned more pessimistic about the economy amid growing pressure on household budgets from rising energy prices and broader inflation, according to an opinion poll by Kantar Public.

British house prices rose by 0.1% in September from August, figures from mortgage lender Nationwide showed.

The five-year, five-year forward inflation-linked swap - a proxy for inflation expectations over the next five years - rose to 3.905% on Tuesday, the highest since daily records published by Refinitiv began in 2013, and up from 3.878% on Monday.

(Reporting by Joice Alves, Editing by William Maclean)

Source: Reuters

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