British Pound: Robust data strengthens case for BoE hikes – BBH

UK Q3 GDP grew 0.7% q/q. Consumption and investment drove the solid expansion, but the Pound (GBP) barely reacted, according to Elias Haddad at Brown Brothers Harriman (BBH). Swap pricing continues to indicate a high probability of consecutive Bank of England (BOE) rate increases, which would take rates above neutral and heighten risks to future growth. Resilient UK activity is nevertheless viewed as supportive for GBP for now, especially against EUR.

0.7% UK GDP growth underpins Pound

"GBP largely ignored the UK’s good Q3 GDP print. Real GDP increased 0.7% q/q vs. 0.5% in Q2, matching consensus and the BOE’s forecast. Household consumption and fixed investment were the main growth drivers."

"September real GDP also surprised to the upside, rising 0.2% m/m (consensus: 0%) after stagnating in August, underpinned by gains in services, production and construction."

"The swaps curve still implies about 70% odds of a back-to-back 25bps hike to 4.25% on December 17, and a total of 85bps of tightening over the next twelve months. That would push the policy rate well above the BOE’s estimated 2-4% neutral range, raising the risk of a sharper growth slowdown ahead. For now, resilient UK economic activity reinforces the case for additional BOE hikes which is GBP positive, especially against EUR."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)