Sterling modestly reduced its decline against the dollar on Thursday following UK economic data that indicated stronger-than-anticipated growth in November; however, this did not influence the outlook for the policy rate. Market participants have factored in approximately 40 basis points of rate reductions from the Bank of England by September. The UK gross domestic product has experienced its most rapid growth since June, driven by the resumption of full production at Jaguar Land Rover following a cyberattack that impacted the carmaker and its suppliers.
“Despite the upside surprise, it is important to note that the data are by no means strong,” stated Kallum Pickering. “Economic activity in the UK is, at best, lukewarm, lumpy and remains constrained mostly by a lack of confidence in the policy decisions of the Labour government.” The pound experienced a decline of 0.05% at $1.3443, with a prior drop of approximately 0.10% ahead of the data release. The dollar appreciated as market participants moved past worries regarding the Federal Reserve’s autonomy and redirected their attention towards economic indicators.
“The overarching trend indicates that the UK economy has experienced a decline in momentum since the summer,” stated Andrew Wishart. “We suspect that this soft patch will persist into 2026 amid ongoing job losses and fiscal consolidation,” he added, arguing that this backdrop could bring down inflation and enable the BoE to cut rates by more than the market currently prices in. Investors are increasingly focusing on economic data, as the support for sterling from the reduction of UK fiscal and political risks, which followed Finance Minister Rachel Reeves’ announcement of the November budget, has diminished.
The upcoming release of UK CPI inflation data is set for January 21. The euro increased by 0.15%, reaching 86.54 pence. Wednesday’s release of China’s full-year 2025 trade data highlighted a critical concern for the UK: the possible dumping of Chinese goods that were initially meant for the U.S. market. In 2025, exports of Chinese goods to the UK experienced a year-on-year increase of 7.8%, while exports to the EU rose by 8.4%.