The British pound remains under pressure on Friday, with GBP/USD struggling to sustain a rebound despite stronger-than-expected UK economic data. According to FX analysts at Brown Brothers Harriman (BBH), sterling’s muted reaction reflects persistent expectations for further Bank of England (BoE) policy easing.
UK retail sales and business activity surprise to the upside
UK retail sales rose more than expected in September, supported by robust online spending and strong demand for gold jewelry. Total retail sales volumes increased 0.5% month-on-month, sharply exceeding forecasts for a 0.4% decline, following a 0.6% rise in August. Excluding auto fuel, sales volumes climbed 0.6% versus a consensus estimate of -0.6%.
Over the third quarter, sales volumes advanced 0.9%, suggesting that UK GDP growth—due to be reported on November 13—could exceed the BoE’s 0.3% quarter-on-quarter projection.
Meanwhile, UK private sector activity also showed resilience in October. The composite PMI rose to a two-month high of 51.1, beating expectations of 50.5 and up from 50.1 in September. The services PMI improved to 51.1 (consensus: 51.0), while manufacturing PMI jumped to a 12-month high of 49.6, well above the 46.6 consensus and September’s 46.2 reading.
BoE easing expectations cap sterling rebound
Despite the encouraging data, investors remain cautious as markets continue to price in a dovish policy outlook. The swaps market currently assigns around a 25% probability of a 25-basis-point rate cut to 3.75% at the BoE’s next policy meeting on November 6. Over the next 12 months, traders expect roughly 50 basis points of cumulative easing, with the policy rate seen bottoming at 3.50%.
“The expected fiscal drag from the upcoming UK budget, scheduled for November 26, could give the BoE further room to ease,” BBH analysts noted. “As a result, we anticipate continued GBP underperformance against the euro, given that the European Central Bank is likely done easing.”
