Weak UK GDP Data Triggers Dovish Repricing Fears

The upcoming UK GDP release could have significant implications for the British Pound (GBP). According to Elias Haddad from Brown Brothers Harriman, a stronger-than-expected GDP print is necessary for the GBP to gain upside traction.

Haddad expects UK real GDP growth to slow in Q2, with consumption easing due to tighter financial conditions and weaker real income growth weighing on demand. This could lead to a dovish repricing of market expectations if the data disappoints.

The Bank of England projects a softer print of 0.3% q/q for Q2, which is lower than the consensus estimate of 0.4%. The BoE also forecasts consumption growth to ease to 0.3% q/q in Q2 from 0.6% in Q1.

Haddad notes that absent a GDP beat, UK rate pricing looks vulnerable to a dovish repricing against the GBP. The swaps curve continues to imply 50bps of BoE tightening to 4.25% in the next twelve months, which would leave the policy rate above the BoE's estimated neutral range.