UK GDP unlikely to meet BoE forecast as Chancellor looks to reassure markets
Britain’s economy posted barely noticeable growth of just 0.1% in August, with the recent tax hikes, higher UK inflation and jitters abroad continuing to dampen activity. It's now tough to see how the economy meets the Bank of England’s third quarter growth estimate of 0.4%, which we see as increasingly optimistic, particularly with Autumn Budget uncertainty likely to have kept growth tethered in September.
It’s not all doom and gloom, as upward revisions to previous GDP data suggests that the UK economy is actually moderately larger than anticipated a few months ago. While this could take some pressure off the government to tap the public purse, Chancellor Reeves still faces an uphill battle to plug the fiscal gap and reassure markets that she has a credible plan for growth. We expect to see an amalgam of tax increases next month, but investors will be clamouring for commitments to at least mild spending cuts, which could limit the hit to growth in 2026.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
