Pound recovers as growth boosts rate hikes

The British Pound rose to its highest level in approximately six weeks against the Euro, following a revision of UK economic growth data showing that the economy expanded by 0.5% in the second quarter of 2026, exceeding the initial estimates of 0.4%. This improvement strengthened market expectations that the Bank of England will raise interest rates before the end of the year, with forecasts indicating a tightening of up to 33 basis points by the end of 2026 and 100 basis points by the end of 2027. At the same time, the Pound was positively influenced by the decline of the US dollar, amid hints from Federal Reserve officials that there may be no immediate need to raise American interest rates, further boosting the attractiveness of the British currency. However, the Bank remains cautious about the impact of rising energy prices on inflation, especially following energy supply disruptions caused by the conflict in the Middle East. The market is also watching the direction of UK fiscal policy, particularly as Prime Minister Andy Burnham's government prepares to unveil its budget, amid divided expectations regarding the future relationship with the European Union.

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