Pound strengthens after British GDP data

LONDON (Reuters) -The pound strengthened a touch on Thursday after data showed Britain's economy grew in line with economists' expectations in the second quarter of 2024.

Sterling was last up 0.2% on the dollar at $1.2854, and also strengthened versus the euro, which dipped 0.19% to 85.68 pence.

The economy grew by 0.6% in the second quarter of 2024, in line with forecasts and building on a 0.7% recovery in the first quarter of the year, after a shallow recession in the second half of 2023, official figures showed.

Analysts however also noted that growth in government spending contributed to the increase, while private consumption growth was fairly lacklustre.

"What we really want to see is an increase in consumer spending, and from that point of view I think the gains in the pound could fade as it leaves the door open to further Bank of England rate cuts," said Jane Foley, head of FX strategy at Rabobank.

The BoE cut rates earlier this month from a 16-year high, and market pricing currently reflects two further 25 basis point rate cuts this year, though with just under a 40% chance of another cut priced for the BoE's September meeting, traders expect it to move cautiously.

"We don't think there is enough evidence for the bank to go back to back, with services inflation still at 5.2%," said Foley.

British consumer price inflation increased for the first time this year in July, official figures showed on Wednesday. Annual services price inflation fell to 5.2% in July from June's 5.7%, but was below all forecasts in a Reuters poll and was the lowest since June 2022.

(Reporting by Alun John; Editing by Dhara Ranasinghe and David Holmes)