UK GDP: Essentially impossible for this pace of growth to be maintained in 2026
The UK economy reignited back into life with surprisingly robust expansion of 0.3% in November - a real turn up for the books after economists had pencilled in practically no growth at all. Businesses appeared largely unperturbed by the high uncertainty plaguing the Autumn Budget, while consumers continue to spend despite the clear deterioration in labour market conditions in the past year or so.
We caveat this optimism by saying that we think that it will be essentially impossible for this pace of growth to be maintained in 2026, with a modest slowdown this year on the cards. While a continued drop in inflation should ease pressure on household pay packets, a growing tax burden, high mortgage rates and a further tick upwards in joblessness all present material downside risks to the outlook.
Today's data should, however, make the Bank of England's job a little easier in that there is now very little pressure on the MPC to slash rates again for at least the next couple of meetings. We should still see at least one, possibly two, further rate reduction later this year, but this will be largely contingent on continued signs of an easing in inflationary pressures.
Sterling has received a mild leg up this morning, as traders are now not fully pricing in the next UK rate cut until June.
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.
