The UK’s GDP growth in Q1 was +0.7% compared to the previous quarter, driven by a surge in exports before US tariffs. However, this growth is likely to reverse in Q2 due to difficulties in the manufacturing sector. Forecasts for Q2 GDP suggest minimal growth of +0.1% compared to Q1. This cautious outlook may affect the Bank of England’s monetary policy. Barclays analysts predict a slightly better growth of +0.2%, assuming no changes to previous data, citing that Q1’s strong performance was due to temporary factors such as higher US demand and a change in the stamp duty in April.

Predictions From Morgan Stanley

Morgan Stanley forecasts a flat growth rate of 0.0% for Q2, with a chance it could rise to +0.1%. This prediction accounts for a possible decrease in May’s figures and a moderate uptick in June. The preliminary Q2 GDP results for the UK will be released tomorrow, August 15, 2025. The market expects a slowdown, with a consensus growth estimate of just +0.1%, a significant drop from the export boost of +0.7% in Q1. This expectation is likely to create increased volatility in the pound and UK stocks. Data from July 2025 has already shown signs of weakness, with the S&P Global/CIPS Manufacturing PMI falling to 48.5, signaling contraction. Additionally, inflation remains stubbornly high at 2.3%, leaving the Bank of England with limited options. These economic factors are expected to restrict any positive surprises. For traders bracing for disappointment, buying short-dated puts on the FTSE 100 or the GBP/USD pair could be a direct way to capitalize on a negative response. If GDP is reported at 0.0% or lower, the pound may drop below the 1.2400 level it has been testing. Bear put spreads can also be employed to reduce the entry costs for such trades.

Opportunities In Volatility

Given the possibility of unexpected results, some traders may prefer strategies that profit from volatility itself. A straddle using at-the-money options on a currency ETF tracking the pound could benefit from significant price moves, regardless of whether the GDP figure is better or worse than expected. This strategy bets on the fragile +0.1% consensus. We experienced a similar trading atmosphere during the economic slowdown of late 2022, when uncertainty surrounding GDP figures caused sharp, short-term movements in the pound. Traders who anticipated volatility ahead of major data releases were rewarded then. History shows that initial reactions to these figures can be exaggerated, leading to further trading opportunities. Looking ahead, a weak GDP report will likely be used by the Bank of England in their September meeting to justify maintaining current policy. This reinforces the belief that UK interest rates have peaked for this cycle, which will keep pressure on gilt yields. Traders in interest rate futures should prepare for a more dovish stance from policymakers. Create your live VT Markets account and start trading now.

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