FX.co ★ Sterling Strengthens After Surprise GDP

The British pound strengthened to around $1.325 after data showed the UK economy grew more than expected in August, bolstering expectations that the Bank of England may raise interest rates next month. GDP rose 0.1% in August, following a 0.4% expansion in July and confounding forecasts of a contraction. Output was also up 0.7% in the three months to August, marking the fourth consecutive month in which growth exceeded expectations.

The figures indicate that businesses have remained resilient despite elevated energy costs and higher borrowing expenses. Several Bank of England policymakers are closely monitoring the stronger activity data, especially as the energy shock linked to the war involving Iran amplifies inflation risks.

Attention now turns to Chancellor John Healey’s first budget on October 28, which comes against a backdrop of tight public finances and market volatility. While the IMF has endorsed the government’s plans to reduce the deficit, the authorities remain under pressure to ease the cost-of-living squeeze on households.