FX.co ★ Pound Holds Above $1.34 as UK GDP Data Meets Expectations

The British pound sustained its position above $1.34 following UK GDP figures that aligned with expectations, offering some relief to Finance Minister Rachel Reeves ahead of the nation’s budget announcement on November 26. The UK economy expanded by 0.1% in August, a recovery from a 0.1% downturn in July, driven primarily by the manufacturing sector, while services remained unchanged for the second consecutive month and construction experienced a decline. Nonetheless, an annual growth rate of 1.3% falls short of what is needed to negate the requirement for tax increases. Reeves has indicated she is contemplating tax rises and spending reductions, as the government faces the necessity to generate approximately £30 billion amidst escalating borrowing costs, the abandonment of planned welfare reductions, and revised lower growth projections. In terms of monetary policy, market participants have heightened their expectations for Bank of England rate reductions next year, notwithstanding the International Monetary Fund's warning that inflation is anticipated to remain the highest among G7 nations until 2026. The IMF advised the Bank of England to exercise caution in its policy approach.