Elias Haddad at Brown Brothers Harriman (BBH) reports that the Pound (GBP) showed limited reaction to solid UK Q3 GDP, with 0.7% q/q growth driven by consumption and investment. Swaps still price a high probability of back-to-back Bank of England (BOE) hikes, pushing rates above neutral and raising future growth risks. For now, resilient UK activity is seen as supportive for GBP, particularly versus EUR.

Strong UK growth supports 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.”