UK GDP beat forecasts, yet economists at ING Bank argue that UK inflation will matter more than one strong month of growth.
Britain’s economy grew 0.4% in July when economists had expected it to stall.
ING’s Francesco Pesole remains unconvinced that higher interest rates will follow: “Our baseline is still that the Bank of England won’t hike at all, leaving sterling in front of a potential cliff-edge dovish repricing.”
On Friday morning, ING put expected tightening at 48 basis points by the end of 2026 and 110 by July 2027, equivalent to roughly two and four quarter-point increases respectively.
Stronger growth has not settled the inflation question
July’s expansion followed a 0.3% increase in June, with services, production and construction all growing over the month.
The pound initially benefited, but Pesole cautioned: “GBP is a tad stronger on the back of that, but these monthly growth prints have not had much impact on BoE decisions.”
ING economist James Smith argues that policymakers have relied more on their own surveys of activity and sees little evidence that higher energy costs are spreading into broader inflation.
“We expect another 6-3 vote to keep rates on hold next week,” Smith wrote in his assessment of the GDP figures, ahead of the 17 September decision.
For us, the distinction is whether stronger output is accompanied by more persistent price pressure, which the GDP release alone cannot establish.
That leaves a risk for Pound Sterling if investors scale back the rate rises already priced in.
Pesole’s fourth-quarter 2026 currency forecasts remain unchanged: “We continue to see upside room for EUR/GBP and downside for GBP/USD, with 4Q targets of 0.87 and 1.33.”
Our currency coverage draws on live market data, official economic releases and published bank research.
