British Pound: BoE rate hikes gain support from resilient data – BBH

UK Q3 GDP grew by a solid 0.7% q/q, led by consumption and investment, but the Pound (GBP) barely responded, according to Elias Haddad at Brown Brothers Harriman (BBH). Swap pricing continues to indicate a high probability of consecutive Bank of England (BOE) rate rises, which would take rates above neutral and increase risks to future growth. For the time being, the resilience of UK activity is viewed as a source of support for GBP, notably against EUR.

Pound finds support in strong UK growth

"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.)