Pound vs dollar: Sterling rallies as Britain enters recession but GDP bounces in June

Sterling has rallied as official figures showed Britain has entered recession, but the economy's bounceback was better than expected in June.

The pound slumped overnight against the dollar but rallied back as the Office for National Statistics reported that GDP fell by 20.4% in the second quarter as the coronavirus crisis hit the UK.

First-quarter GDP fell 2.2% and two consecutive quarters of negative growth represent a recession.

Although Britain was widely expected to enter recession, traders scoured the data for signs of how rapid the economy’s bounceback may be – whether it will be a V or a U shape.

The pound fell sharply overnight – from month-highs of $1.3123 yesterday to as low as $1.3017 this morning. But as figures were released it rallied back - gaining to $1.3050 - down nearly half a cent on the day. Figures showed that the economy grew 8.7% in June, against estimates of a 8% improvement, buoying sentiment around the pound's prospects.

Sterling has been as high as $1.3215 this year before the virus outbreak pushed Britain into lockdown. The currency is still well below trading of around $1.46 before the Brexit vote in 2016, which has weighed heavily on trading ever since.

Sterling was flat against the euro overnight and barely moved against the eurozone currency on the GDP figures.

Monthly GDP data has given a flavour of how the UK fared during the lockdown and how it has responded to the easing of restrictions. Output fell by 6.9% in March, when the lockdown was brought in, which prompted a 2.2% decline in first quarter GDP. April was the nadir, with output falling 20.3%.

Output began its recovery as the government eased restrictions from mid-May. GDP rose by a modest 1.8% in the month, leaving activity 24.5% below its pre-virus peak.

Figures for GDP in August will be closely watched for the impact of Chancellor Rishi Sunak's Eat Out to Help scheme, an attempt to boost the troubled restaurant industry.