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2025-12-12 17:31:37
[Economic Alarm Sounds, Interest Rate Cut a Foregone Conclusion: What's Next for the Pound?] ⑴ Latest data shows that the UK economy unexpectedly contracted in the three months to October, with GDP falling 0.1% month-on-month, worse than the market expectation of flat growth, and no growth since June. ⑵ The economy also contracted by 0.1% in October alone, with the dominant service sector output falling 0.3%, and the construction industry also experiencing an unexpected decline. Only the automotive manufacturing industry rebounded only moderately from the impact of cyberattacks. ⑶ The weak data highlights the grim economic backdrop facing Chancellor Reeves before he announces the tax increase budget on November 26th. Pre-budget market uncertainty is considered a significant factor suppressing economic activity. ⑷ Following the data release, the market reacted quickly, with the pound weakening against the dollar, while UK government bond prices rose due to rising expectations of an interest rate cut. ⑸ This data has cast doubt on the Bank of England's forecast of approximately 0.3% economic growth in the fourth quarter. Currently, financial markets believe there is a 90% probability that the central bank will cut interest rates at its meeting on December 18th. ⑹ Although some business organizations have raised their economic growth forecasts for next year due to post-budget government spending plans, structural weaknesses in the economy remain, and future growth prospects will depend heavily on the actual effectiveness of central bank monetary policy.
