Pound Sterling Gains on Euro and Dollar Following GDP Beat

Image © Adobe Images

The British pound rose after the UK economy expanded 0.3% in November.

The economic growth figure surpassed expectations for growth to recover to 0.1% from October's -0.1%.

The surprise was large enough to trigger a rise in the pound to euro exchange rate from 1.1542 to 1.1550 in the minutes following the release. The pound to dollar exchange rate rose from 1.3427 to 1.3442.

Pound Sterling Live on Tuesday tipped readers off to this outcome.

"The pickup in UK growth has taken the market by surprise," says Kathleen Brooks, Research Director at XTB. "The pound has reversed some of its decline on the back of this data and GBP/USD may test $1.3450 later this morning if the upside momentum continues."

The ONS says the 0.3% advance in monthly GDP helped the economy achieve growth of 0.1% in the three months to November 2025.

Services added +0.2% in the three months, while production (-0.1%) and construction (-1.1%) were drags.

The pound's reactionary rise is what we would expect from a handsome beat on expectations, and this sets the currency in good stead for the coming days and the run-up to next week's labour and inflation data.

Next week's figures will be of greater significance to the currency market, given they are closely watched by the Bank of England, which will meet in February to discuss whether or not to lower interest rates again.

On these GDP data alone, the answer would be that it might be prudent to wait. At its most recent meeting in December, the Bank of England communicated a cautious approach to further interest rate cuts in the coming months.

The Bank remains concerned that inflation is anchored well above its 2.0% target, and further interest rate reductions risk inflaming that situation.

An economy that continues to register growth, albeit unimpressive growth, will not prompt a shift in stance at the Bank.

Money markets have recently reduced bets for the scale of UK rate cuts in 2026, which supports UK bond yields and mechanically lifts the pound.

The pound has engaged recovery mode against the euro and dollar since November last year, and these data assist that recovery into 2026.

Above: The return of production at Jaguar Landrover will boost manufacturing output. Image © Adobe Images

A significant development highlighted by today's data is the recovery in UK manufacturing in November, driven largely by a resumption in production at Jaguar Land Rover.

The company's UK works were shuttered in August due to a cyber attack and the resumption of production helped lift the car production component of these GDP data by a massive 25%.

So this offers a sizeable mechanical boost to the figures that risks flattering today's solid headlines.

The outlook certainly suggests the UK is not on the cusp of a new economic renaissance, with recent survey data showing subdued sentiment and conditions.