The UK’s year-on-year gross domestic product (GDP) growth was 1% in the fourth quarter.
This was below the forecast of 1.2%.
Implications For Monetary Policy
The final Q4 2025 GDP figure of 1.0% year-on-year confirms the slowdown we expected. Because this is weaker than the 1.2% forecast, the Bank of England may need to rethink how soon it starts cutting rates. As a result, the March Monetary Policy Committee meeting is now a key date for markets.
We see this report as a signal that Sterling could stay weak in the coming weeks. The January 2026 inflation report showed CPI falling to 2.3%, which gives the Bank more room to act. Traders may consider buying GBP/USD put options that expire in April to position for a possible rate cut. Overnight swaps now price a 65% chance of a cut in March, up from 40% last week.
In equities, the FTSE 100 may hold up better because many of its companies earn revenues overseas and can benefit from a weaker pound. By contrast, the more UK-focused FTSE 250 looks more exposed to the domestic slowdown. One way to trade this gap is a pairs trade: long FTSE 100 futures and short FTSE 250 futures.
The clearest opportunity may be in UK government bonds. We expect yields to fall further as investors price in a more dovish Bank of England. This GDP report follows weak December 2025 retail sales data from last month, which showed a 0.8% decline. It also echoes what happened in late 2023, when similar recession worries triggered a sharp rally in Gilts.
Rates Strategy And Market Positioning
Create your live VT Markets account and start trading now.
here to set up a live account on VT Markets now
