GBP: markets appear to believe a UK interest rate rise is on the cards

Sterling strengthened yesterday following the release of UK GDP figures. From 0.3% in the second quarter, growth moved up to 0.4% in the third quarter. The markets instantly reacted and took the data as a sign that UK interest rates are likely to rise when BoE convene on 2 November 2017.

However, several economists warned that the figures were nothing to get too excited about. For one thing, 0.4% is still below Britain’s long-term growth rate and 2017 could prove to be the weakest year for the UK economy since the financial crisis. In addition, if the figures are adjusted for population changes, GDP only rose by 0.3%

It is also worth bearing in mind that UK construction shrank for the second quarter in a row. That effectively means that the UK’s building sector is in recession. Some food for thought, but it highlights how the picture is perhaps not quite as rosy as the markets appear to think.

It’s a quiet day for UK economic data today, but in any case, the markets will be focused on the ECB meeting later.