Sterling edges higher but UK growth data limits gains
The British pound strengthened slightly on Thursday, lifted by renewed investor appetite for risk following a U.S. government deal to end its record-long shutdown. However, gains were capped by weak UK economic data showing sluggish growth.
The UK economy expanded just 0.1% in the third quarter, slowing from 0.3% growth in the previous quarter, the Office for National Statistics (ONS) reported. The figures underscore the fragile state of Britain’s economy as Finance Minister Rachel Reeves prepares her November 26 budget, which is expected to include a series of tax increases, News.Az reports, citing Reuters.
Sterling was last up 0.2% at $1.3158, after earlier touching a low of $1.3102.
Market sentiment remains cautious, with traders assigning an 80% probability of a Bank of England rate cut in December. The central bank held rates steady in November amid uncertainty over inflation and growth trends. Investors also expect at least two more rate cuts in 2026, with a possible third depending on economic conditions.
Political uncertainty is also weighing on the pound. Prime Minister Keir Starmer faces growing dissent within the Labour Party and falling approval ratings.
“We expect the pound to weaken further if political risk rises,” said Lee Hardman, currency strategist at MUFG, noting that local elections in May could be a critical test of Starmer’s leadership.
Ahead of Reeves’ budget, market volatility is rising. Two-week sterling options volatility — covering the budget date — has climbed to 6.83% from 6.36% a week earlier, reflecting traders’ efforts to hedge against sharp price swings.
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