UK third quarter growth came in slightly below expectations this morning: 0.1% QoQ and 1.3% YoY, ING's FX analyst Francesco Pesole notes.
Downside risks for GBP to remain in the short term
"This complicates the job of Chancellor Rachel Reeves a bit more ahead of the UK Budget, where she’ll try to reassure markets with fiscally prudent measures, whilst trying not to dampen growth excessively or stoke up inflation."
"All this is happening in a moment of renewed turmoil in UK politics. Markets had initially dismissed reports about leadership challenges to Prime Minister Keir Starmer, but as the noise increased yesterday, we saw EUR/GBP starting to trade higher. The risk premium (short-term overvaluation) on the pair has now risen to 1.2%, in our view."
"A major cabinet reshuffle or even a change of prime minister before the Budget seems unlikely, but with a December BoE cut still not fully priced in, we aren’t too concerned about EUR/GBP strength. After the Budget, we could see the pair settle around 0.88, but downside risks for sterling won’t be exhausted in the short term."
