UK GDP Revised Up, Boosting Economic Outlook

GBP: A welcome revision to GDP

The UK national data office – the Office for National Statistics (ONS) – gave UK policymakers a welcome boost on Friday by revising up GDP growth in 2021 by 1.7%. That means that the UK returned to pre-pandemic growth much earlier than believed and that the revision leaves Germany exhibiting the weakest post-pandemic performance in the G7. The revision could also provide a little more fiscal headroom for the government, and we would not be surprised if speculation grew over some fiscal giveaways in the Chancellor's Autumn statement due in November. 

Sterling has turned marginally better bid against the euro over recent days. Expect it to trade towards the lower end of a 0.8500-0.8600 range in the near term. It is a quiet week for UK data, but there may be some interest in Thursday's release of the Bank of England Decision Make Panel survey. Lower inflation expectations would be welcome but will not be enough to prevent the BoE from hiking 25bp on September 21st.     

We do still, however, believe that the market prices about 20bp too much into the BoE tightening cycle and that sterling can soften a little in the fourth quarter.

Chris Turner