0.6% UK growth? Why you should be sceptical
At a Glance
The desk expresses skepticism regarding the projected 0.6% growth for the UK economy, particularly in light of historical trends that show stronger performance in the first quarter compared to the rest of the year. Per the full note source, this pattern has persisted since 2022, suggesting that the anticipated growth may not materialize as expected. The desk highlights that while the UK economy often sees a boost in early-year performance, the sustainability of this growth remains questionable given the broader economic context and potential headwinds. With no high-impact events on the calendar in the next 30 days, market participants should remain cautious about overestimating growth prospects.
Key Takeaways
Full Analysis
What the desk is arguing
ING argues that the UK's apparent 0.6% Q1 growth is largely a seasonal artifact, as the economy has consistently outperformed in the first quarter since 2022 only to slow later. They expect 2026 to follow the same pattern, with growth fading after Q1.
Supporting evidence comes from historical data: UK Q1 GDP has repeatedly surprised to the upside relative to subsequent quarters. The desk implicitly rejects the narrative that the UK economy has structurally improved, warning that early-year strength masks underlying weakness.
Where it sits in our coverage
Our own forecasts align with a cautious view on GBP, expecting a gradual drift lower in EUR/GBP towards 0.85 by year-end. We see Q1 GDP noise as a headwind for GBP bulls, consistent with our below-consensus UK growth outlook.
Other firms are split: Barclays targets EUR/GBP at 0.87 for Dec-26, mildly bearish GBP. JPMorgan is more aligned with our view at 0.86. Goldman Sachs is contrarian at 0.82, expecting sustained GBP strength.
How other firms see it
Most banks echo ING's skepticism on Q1 growth persistence. JPMorgan and Barclays are aligned, expecting GBP to weaken later in the year. Goldman Sachs stands contrary, forecasting continued GBP appreciation.
Market Implications
GBP is likely to weaken against EUR and USD as markets digest seasonal distortions. Short-term GBP longs may unwind, while EUR/GBP could test 0.86 by mid-2026.
From the original
UNITED KINGDOM: Ever since 2022, the UK economy has grown much faster in the first quarter than in the rest of the year. And 2026 looks like it'll be no different
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4 items0.6% UK growth? Why you should be sceptical
The UK economy's modest projected growth of 0.6% raises skepticism among market participants, with ING Economics questioning the sustainability of this forecast. Per the full note, the UK faces challenges such as high inflation and sluggish consumer spending, which could undermine the growth outlook. Current data suggests that while some economic indicators may appear stable, the broader economic environment remains precarious. This skepticism is further supported by the Bank of England's cautious stance and the broader economic signals seen in the market.
Goldman Sachs Forecast: GBP/EUR Weakness Postponed, But Not Cancelled, End-2026 Target 1.09 - Exchange Rates Org UK
The desk interprets Goldman Sachs' recent commentary as a signal that while GBP/EUR weakness is postponed, it remains a looming concern, with a target of 1.09 by the end of 2026. Per the full note [source], the analysis suggests that despite current resilience in GBP, structural challenges persist that could lead to depreciation against the EUR in the medium term. This aligns with our view that the market is underestimating potential headwinds from the UK economy, particularly in light of ongoing inflationary pressures and monetary policy adjustments.
Pound-to-Euro Forecast: GBP/EUR Slips As UK Growth Outlook Darkens For 2026 - Exchange Rates Org UK
Dreadful UK jobs report questions need for rate hikes
The desk interprets the dismal UK jobs report as a significant signal that raises doubts about the necessity for further interest rate hikes, highlighting a deterioration in employment conditions contributing to weakened consumer demand. Per the full note from ing-think, rising unemployment and plummeting wage growth reflect an economy less vulnerable to second-round effects from energy shocks. While the ongoing inflation pressures could theoretically support a rate hike forecasted for June, the current data presents a strong case for caution. This uncertainty may lead to a reassessment in market pricing of future rate expectations.
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