GBP Growth Misses Mark for BoE Rate Hike

The UK economy experienced a stronger-than-expected growth in July, beating forecasts with a 0.4% increase. However, economists at ING Bank caution that this positive news may not necessarily translate to higher interest rates or a strengthening Pound Sterling.

According to Francesco Pesole, ING's economist, the Bank of England is unlikely to hike interest rates anytime soon, leaving the pound exposed to potential volatility. He notes that even though growth has been strong in recent months, with services, production, and construction all growing over July, it hasn't had much impact on BoE decisions.

In fact, ING economists James Smith and Francesco Pesole expect another 6-3 vote at the upcoming September 17 decision to keep rates on hold. They argue that policymakers rely more on their own surveys of activity rather than economic indicators like GDP growth. The distinction lies in whether stronger output is accompanied by persistent price pressure, which the current GDP release alone cannot establish.

Pesole's forecasts for the fourth quarter of 2026 remain unchanged, with upside room for EUR/GBP and downside for GBP/USD. He targets a 0.87 EUR/GBP exchange rate and a 1.33 GBP/USD rate for the period.