Key Takeaways
- The UK economy showed stronger-than-expected growth in November, with GDP recording its fastest growth since June
- Despite this, the overall economic activity in the UK remains lukewarm and constrained by a lack of confidence in policy decisions
- The pound slightly pared its fall against the dollar after the economic data was released, but traders still priced in around 40 basis points of Bank of England rate cuts by September
- The dollar rose as markets shifted their focus to economic data and set aside concerns about the Federal Reserve’s independence
- The UK’s economic momentum is expected to persist into 2026, with ongoing job losses and fiscal consolidation potentially bringing down inflation and enabling the Bank of England to cut rates
Introduction to UK Economic Data
The UK economy showed a stronger-than-expected growth in November, with the gross domestic product (GDP) recording its fastest growth since June. This was largely driven by a return to full production at Jaguar Land Rover after a cyberattack that had hit the carmaker and its suppliers. However, despite this upside surprise, economists warned that the overall economic activity in the UK remains lukewarm and constrained by a lack of confidence in policy decisions. Kallum Pickering, chief economist at Peel Hunt, noted that "economic activity in the UK is, at best, lukewarm, lumpy and remains constrained mostly by a lack of confidence in the policy decisions of the Labour government."
Impact on Currency Markets
The release of the UK economic data had a slight impact on currency markets, with the pound paring its fall against the dollar. The pound was down 0.05% at $1.3443, after falling by around 0.10% before the data was released. The dollar, on the other hand, rose as markets shifted their focus to economic data and set aside concerns about the Federal Reserve’s independence. The euro also rose 0.15% to 86.54 pence. Despite the slight improvement in the pound’s performance, traders still priced in around 40 basis points of Bank of England rate cuts by September, indicating that the market expects the UK economy to slow down in the coming months.
Economic Outlook
The UK’s economic momentum is expected to persist into 2026, with ongoing job losses and fiscal consolidation potentially bringing down inflation and enabling the Bank of England to cut rates. Andrew Wishart, economist at Berenberg, noted that "the big picture remains that the UK economy has lost momentum since the summer" and that "we suspect that this soft patch will persist into 2026 amid ongoing job losses and fiscal consolidation." This could bring down inflation and enable the Bank of England to cut rates by more than the market currently prices in. The next round of UK CPI inflation data is not scheduled until January 21, which will provide further insight into the UK’s economic outlook.
Global Trade and Economic Implications
The release of China’s full-year 2025 trade data also underscored a sensitive issue for the UK: the potential dumping of Chinese goods originally intended for the U.S. market. Chinese goods exports to the UK rose 7.8% year-on-year in 2025, and 8.4% to the EU. This could have significant implications for the UK economy, particularly if the country is seen as a destination for cheap Chinese goods that are no longer being exported to the U.S. due to trade tensions. The UK’s trade relationships with other countries, including China and the EU, will be closely watched in the coming months as the country navigates its post-Brexit trade landscape.
Conclusion
In conclusion, the UK economy showed stronger-than-expected growth in November, driven by a return to full production at Jaguar Land Rover. However, the overall economic activity in the UK remains lukewarm and constrained by a lack of confidence in policy decisions. The pound slightly pared its fall against the dollar after the economic data was released, but traders still priced in around 40 basis points of Bank of England rate cuts by September. The UK’s economic momentum is expected to persist into 2026, with ongoing job losses and fiscal consolidation potentially bringing down inflation and enabling the Bank of England to cut rates. As the UK navigates its post-Brexit trade landscape, its trade relationships with other countries, including China and the EU, will be closely watched in the coming months.
