The British Pound weakened following the release of disappointing GDP data, reinforcing expectations for potential interest rate cuts. According to the UK Office for National Statistics (ONS), real gross domestic product (GDP) fell by 0.1% in the three months ending October 2025. This decline marks the first quarterly contraction since December 2023 and reflects a concerning trend in economic performance.
In detail, the ONS report revealed that GDP in October 2025 is also estimated to have decreased by 0.1%. This follows a marginal growth of 0.1% in the previous quarter (July to September) and 0.2% in August. The contraction was notably influenced by a significant 17.7% drop in the manufacturing sector, particularly in the production of motor vehicles, trailers, and semi-trailers, which had the most substantial impact on the overall GDP figure.
Market Reaction to Economic Data
The immediate response in the foreign exchange markets saw the British Pound decline as investors absorbed the implications of the GDP figures. Prior to the report, the likelihood of a rate cut at the Bank of England’s upcoming meeting was already estimated at around 90%. Despite this high probability, the latest data could further influence market expectations regarding additional rate cuts throughout 2026. Following the GDP release, market pricing for easing adjusted from 57 basis points to 60 basis points.
Next week’s anticipated UK employment and inflation data will be critical. A continuation of economic weakness may lead traders to anticipate further rate cuts, placing additional downward pressure on the Pound. Conversely, if the upcoming data shows signs of strength, it could prompt a reassessment of monetary policy, potentially providing a boost to the currency.
This analysis highlights the delicate balance the Bank of England faces as it navigates economic challenges. The evolving situation underscores the interconnectedness of economic indicators and market perceptions, shaping expectations for monetary policy in the UK.
This article was authored by Giuseppe Dellamotta at investinglive.com.
