BoE View Clashes with Strong UK GDP Data: Will Interest Rates Hike?

Strong UK GDP data has clashed with the dovish view of the Bank of England (BoE), leaving investors uncertain about future interest rate hikes. Francesco Pesole at ING argues that despite resilient Sterling, the move in Gilts is largely externally driven and not caused by domestic fiscal fears.

The 10-year Gilt is now eyeing 5.5% and the 30-year is close to 6.0%, but Sterling held up well, confirming this was a purely externally driven move. Chancellor John Healey's pledge to budget discipline has limited room for pro-growth government measures.

Pesole maintains that the BoE will not hike further, warning of a potential dovish repricing and targeting higher EUR/GBP and lower GBP/USD into the fourth quarter. UK GDP surprised to the upside this morning, rising 0.4% MoM after June's strong 0.3% gain.