UK GDP growth below 0.4% q/q could prompt markets to reduce Bank of England tightening expectations, weighing on the pound.
The British pound may struggle to gain ground unless UK Q2 GDP growth exceeds expectations, analysts said. Consensus forecasts a 0.4% quarterly rise, down from 0.6% in Q1, while the Bank of England projects a softer 0.3% print due to weaker real income growth and tighter financial conditions.
Market pricing currently implies 50bps of additional BoE tightening to 4.25% over the next year, above the central bank’s estimated neutral range of 2.00%-4.00%. However, a disappointing GDP print could trigger a dovish repricing, reducing rate hike bets and pressuring GBP.
Slower consumption growth, forecast at 0.3% q/q in Q2 versus 0.6% in Q1, further clouds the outlook. The swaps curve reflects elevated tightening expectations, but softer data may challenge this view.