The British pound reached a three-week high on Friday, climbing to approximately $1.333. This surge came after stronger-than-expected UK economic data bolstered expectations of a potential Bank of England rate hike next month.
August's GDP grew by 0.1%, following a 0.4% expansion in July, defying forecasts of a contraction. Over the three months to August, output rose by 0.7%, highlighting the economy's resilience. This strength has reinforced the case for tighter monetary policy, with markets still largely anticipating a 25-basis-point hike on November 5, though expectations have slightly eased.
Governor Andrew Bailey noted limited evidence that higher energy costs were affecting wages and broader prices, but cautioned that it was too early to assess the full impact. Other policymakers have advocated for earlier action against inflation risks.
Investors are also closely monitoring Chancellor John Healey’s upcoming budget, which aims to alleviate household pressures while maintaining plans to reduce the deficit.