Sterling swells as strong GDP data astonishes BoE rate-hike talk

British Pound

British pounds spiked to its highest in over a week against the dollar on Wednesday after data proved the British economy is steadily gaining speed, encouraging expectations that the Bank of England will increase interest rates next week.

Britain’s quarterly gross domestic product growth revealed the economy growing at a rate faster than predicted, disregarding some of the earlier doubts around the probability of a rate hike following the BoE policy meeting on November 2.

Gross domestic product increased from 0.3 percent to 0.4 percent in the third quarter and overcame the predictions of most economists of a 0.3 percent expansion. Chancellor Philip Hammond characterized this performance as “solid”.

This propelled pounds up by over a full percentage point on the day, increasing to $1.3271 GBO=D3 for an 8 day high before steadily going down to $1.3255 by 1550 GMT.

Sterling strengthened versus the euro up to over half a percent, as much as 88.80 pence EURGBP=D3.

Expectations intensifies for faster rate increase from the Bank as the result of the GDP data. The five year government bond yields GB5YT=RR increased to its highest level ever since last year’s majority vote to leave the European Union.

According to analysts, questions still exist over the long term state for the British economy. Squeezed household incomes, ongoing doubts and lower rates of productivity diminished the probability of an extended period of interest rate increase.

Worries about the advance of talks on Britain’s withdrawal from the European Union maintain to affect the pounds, investors and businesses are eager to see a framework in place soon for the two year grace period following Britain’s formal departure in March of 2019.

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