Pound Steady As UK Economy Shuffles After Surprising US Inflation

What’s Going On With the Pound?

The pound barely moved against the dollar on Friday – a tiny jump of about 0.05% after a dip to a one‑month low on Thursday.

Why? The latest August figures for the UK economy were all over the place. Let’s break it down.

Monthly Numbers

GDP nudged up by 0.2%, exactly what was expected.
Construction, industry and manufacturing all flipped the script, turning last quarter’s slump into modest growth. Construction was a bit slower than forecast, though.
Services slowed a bit more than you’d want – from 0.4% to just 0.1%.

Year‑on‑Year Snapshot

GDP grew between 0.9% and 1.0%, lower than analysts had hoped.
Industrial output fell faster than expected.
Construction got a surprise boost, and manufacturing didn’t drop as hard as predicted.

So, the economy is still on the up‑trend, but not rocket‑speed. That gives the Bank of England some breathing room if it wants to keep rate cuts conservative.

Why the Bank Might Sit Tight

The UK Credit Conditions Survey says default rates dipped in Q3 compared to Q2, hinting that the financial system is holding up.
Inflation fears are stirring again, thanks to political tensions in the Middle East. An escalated conflict could send oil prices up, which, in turn, could spark a price spike.
Even though U.S. and Israel seem to be tightening their alignment on potential strikes, the U.S. worries about a major ripple affecting Iran’s oil and nuclear facilities.

What Might the Bank Do?

Hey, Andrew Bailey just hinted at a more aggressive cut. And placeholder Huw Pill, who flipped his stance last month, is now on the side of cutting. All roads point to a 25‑basis‑point reduction when the Bank meets in November.

How the U.S. Sets the Stage

American data still backs the view that the Fed won’t slash rates by more than half a percentage point this year. The CME Market Watch suggests two 25‑basis‑point cuts are likely in November and December.

Interestingly, the U.S. dollar’s safe‑haven aura is solidifying amid geopolitical jitters. That likely puts extra pressure on the pound, making a dip almost inevitable.

Bottom Line

In short, the pound’s steady movement is a reflection of an economy that’s doing okay, but still under the influence of global uncertainties. The Bank may be waiting for clear signs before committing to a rate cut, while the U.S. Fed keeps its eye on the inflation process.