TD Securities expects UK GDP to rise by 0.1% month on month in December. This increase is mainly due to manufacturing, which is forecast at +0.1% m/m. The market expects manufacturing to fall by 0.1% m/m.
Services are expected to be flat in December, compared with a market forecast of +0.1%. If that happens, Q4 2025 GDP would be +0.2% quarter on quarter.
The +0.2% q/q result matches both the consensus view and the MPR projection. Services in Q4 2025 are expected to rise by +0.1% q/q.
This weak growth pattern supports the case for a March rate cut. The article says it was produced with help from an AI tool and reviewed by an editor.
In late 2025, we expected weak Q4 GDP to strengthen the case for an early rate cut. Even a small +0.2% quarterly gain, led by flat services, would have suggested to the Monetary Policy Committee that spare capacity was building. That would have set up a policy shift early in the new year.
Official data released in January confirmed the weakness. The UK economy posted 0.0% growth in Q4 2025, narrowly avoiding a recession. This was weaker than the modest growth that had been expected. Markets now price in an 85% chance of a 25-basis-point cut at the March meeting.
Inflation data has added to this view. January CPI fell to 2.8%, continuing a steady move toward the 2% target. The labour market also looks softer: wage growth has cooled and unemployment rose to 4.4% in the three months to December. With flat growth and easing inflation, the MPC has more room to start cutting rates.
For derivative traders, this argues for positioning for lower UK rates in the coming weeks. Trades that benefit from lower short-term rates may fit, such as buying put options on SONIA futures or using forward rate agreements to lock in lower future borrowing costs. These positions match the broad view that a cut is near.
This policy gap may also weigh on sterling. Traders can use FX options to take a bearish GBP view, especially versus currencies where central banks are likely to stay on hold. For example, buying GBP/USD put options can benefit from a weaker pound while keeping upfront risk limited.
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