British Pound: Why do resilient data bolster the case for BoE hikes? – BBH

The Pound (GBP) remained largely unmoved by robust UK Q3 GDP figures, according to Elias Haddad at Brown Brothers Harriman (BBH). Consumption and investment fuelled growth of 0.7% q/q. Swap pricing continues to indicate a strong likelihood of consecutive Bank of England (BOE) rate hikes, which would take rates above neutral and increase risks to future growth. For now, the resilience of UK economic activity is viewed as a positive for GBP, especially against EUR.

Can robust UK growth underpin further Pound strength?

"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.)