GBP/USD Outlook: British Growth and US Inflation Pull Rates in Different Directions
Stronger UK growth supports the Pound Sterling against the US Dollar, but Goldman’s cautious outlook faces competing signals from British and American rate policy.
Britain’s economy has outperformed expectations, supporting Sterling without settling how far the Bank of England will raise interest rates or overturning Goldman Sachs’ cautious medium-term currency forecast.
GBP/USD traded near 1.3263 on Thursday afternoon, up about 0.24% from Wednesday’s close.
Pound to Dollar (GBP/USD): 1.325441 (+0.17%)
Dollar to Yen (USD/JPY): 157.98437 (+0.01%)
Goldman’s latest projections allow for little near-term movement, with 1.33 at three months, around January 2027, before a decline to 1.28 at twelve months, around October 2027.
Those forecasts, however, predate Thursday’s UK GDP release.
UK Growth strength meets Pill’s resistance to rate pricing
The ONS reported a 0.1% expansion in August, rather than the contraction economists had expected, leaving output 0.7% higher over the latest three months.
Production led the monthly increase while services were unchanged, underscoring that a stronger overall economy need not mean every part is accelerating.
The result adds to the case for higher interest rates examined in our earlier coverage of the growth surprise and November BoE outlook.
A more resilient economy gives policymakers greater room to tackle inflation without immediately risking a contraction.
However, BoE chief economist Huw Pill had already pushed back against expectations for an extended sequence of increases.
Mizuho strategist Evelyne Gomez-Liechti writes of Wednesday’s trading: “Gilts outperformed as the session’s initial dovish impulse from BoE Chief Economist Huw Pill proved more durable than the subsequent US CPI shock.”
“Pill questioned the four hikes priced over the coming year, driving an 8.5bp rally in late-27/early-28 SONIA and pulling short-dated Gilts lower in yield, with the move transmitting across the curve and producing early bull steepening.”
Gomez-Liechti adds: “Stronger US CPI then sharply reversed the rally, taking Gilts back towards the previous close and pushing the expected OIS peak to 4.853% in November 2027, equivalent to 112bp of tightening, despite Pill’s pushback.”
That was market pricing, not a rate path endorsed by the Bank of England.
The US Dollar’s interest-rate support remains unsettled
US policy expectations have been just as volatile, with stronger inflation initially pushing yields higher before falling equities encouraged investors to buy bonds.
Goldman expects one more quarter-point Fed increase in December to a 4.00-4.25% target range.
Natixis saw a less reassuring inflation trend: “September’s US inflation report has reignited expectations of further monetary tightening. Coming in above expectations for the second consecutive month, it suggests that the summer’s easing in price pressures may have been temporary.”
Its economists added: “Although supercore inflation moderated, renewed pressure across goods and housing has cast doubt on the disinflationary trend.”
“Nevertheless, we continue to favour a hold at the October meeting. While the latest report gives the more hawkish members of the FOMC additional ammunition, recent comments from Bowman and Williams suggest there is no immediate need to tighten further.”
Its pre-release conclusion was: “We therefore expect the Fed to wait for more data before reassessing its position in December, although the October decision has become a much closer call.”
Thursday’s 1.3% monthly rise in US producer prices arrived after those assessments, adding a fresh risk that inflation will require more restraint.
Goldman’s US outlook combines resilient growth with an eventual easing in inflation.
The bank says: “In the US, we expect real GDP growth of 2.3% on a Q4/Q4 basis in 2026, largely reflecting the continued boost from the AI boom.”
The GDP surprise strengthens the UK side of the comparison, while Pill’s resistance to four priced increases leaves the scale of that support unresolved.
GBP/USD exchange rate FAQ
What does Goldman forecast for GBP/USD?
Its latest twelve-month projection is 1.28, around October 2027, following a three-month forecast of 1.33.
Did Goldman issue that forecast after the GDP result?
No. The stronger growth figures are a new test of its existing outlook.
Does stronger GDP guarantee more BoE hikes?
No. It gives policymakers more room to tackle inflation, but the extent of tightening still depends on price pressures and their assessment of existing restraint.
