Currency Analysts Split On The GBP Outlook

The Pound Sterling edged lower against both the euro and the US dollar on Thursday, despite stronger-than-expected UK GDP data, as investors remained unconvinced the growth rebound will be sustained into 2026.

The UK economy delivered a stronger-than-expected growth reading for November, but the pound failed to benefit as markets remained cautious about the outlook for 2026.

UK Growth Beats Forecasts

This week’s data flow has been broadly supportive for risk sentiment on both sides of the Atlantic. In the US, inflation surprised slightly on the downside on Tuesday, easing fears of renewed price pressures. Producer prices followed on Wednesday with a flat reading, while retail sales rose a solid 0.6%, pointing to resilient consumer demand.

Thursday’s focus shifted to the UK, where GDP data again exceeded expectations.

Figures released by the Office for National Statistics showed the UK economy expanded by 0.3% in November, well above the 0.1% increase forecast by economists and reversing October’s 0.1% contraction. The rebound was driven by a 1.1% rise in industrial production and a 0.3% increase in services output, suggesting activity stabilised toward the end of the year.

Pound Fails to Rally

Despite the upbeat headline, sterling struggled to gain traction. The pound slipped modestly against its major peers in Thursday’s session, with GBP/USD down around 0.35% near 1.34 and EUR/GBP edging higher by roughly 0.15% to 0.8675.

The muted reaction reflects lingering doubts over the sustainability of the rebound. While the data reduces the immediate urgency for further Bank of England easing, it does little to shift the broader narrative of slow growth into 2026.

Money markets have trimmed expectations for aggressive rate cuts, now pricing roughly 46 basis points of easing this year. That represents a modest repricing but still points to a gradual loosening cycle as inflation and wage growth cool.

Analysts Split on the Outlook

In fixed income markets, gilt yields were little changed, with the 10-year yield hovering near 4.5%. Some banks, including Goldman Sachs, continue to expect yields to drift lower toward 4% by late 2026 as inflation trends back toward the BoE’s 2% target.

Economists remain divided on what the GDP surprise means. Deutsche Bank’s Sanjay Raja argued that the stronger print raises the bar for an early rate cut and could signal firmer momentum in early 2026 as budget uncertainty fades and credit conditions ease.

Others are more cautious. ING warned that monthly GDP data is volatile and flagged several reasons why growth may slow again next year, including softer wage growth, declining employment, weaker government spending support, and subdued business investment.

Sterling Needs More Than One Print

For now, markets appear unconvinced that November’s growth rebound marks a turning point. The pound’s lacklustre response suggests investors will need to see a run of stronger data before reassessing the UK outlook.

Without improvement in the labour market or renewed inflation pressures, expectations for further Bank of England rate cuts remain intact, leaving sterling vulnerable to underperformance despite the positive GDP surprise.