UK gross domestic product rose by 1.1% year on year in the first quarter. This was above the expected 0.8% increase.
The data points to faster annual growth than forecast for that period. It compares the first quarter with the same quarter a year earlier.
Implications For Monetary Policy
This stronger-than-expected growth figure shows the UK economy has more momentum than we initially priced in. The immediate consequence is that it pushes back expectations for a Bank of England interest rate cut. We should therefore reduce our exposure to positions that would benefit from imminent rate cuts, such as long positions on UK government bonds (gilts).
With the latest inflation data from April still showing a headline rate of 2.3%, which is stubbornly above the 2% target, this growth reduces any pressure on the central bank to ease policy. We are already seeing traders in the SONIA futures market price out the probability of a rate cut before the autumn. Our strategy must now align with the likelihood that the current 5.25% Bank Rate will be held for longer than previously anticipated.
This shift in interest rate expectations should provide a strong tailwind for the British Pound. We should consider establishing or increasing long positions in GBP against currencies with a more dovish central bank outlook, like the Euro or Swiss Franc, using currency options to manage risk. Implied volatility on GBP/USD options has risen to near 7%, reflecting the market’s reassessment of the Bank of England’s path forward.
For equity markets, this resilience is a positive sign for corporate earnings, especially for domestically-focused companies in the FTSE 250. This is a sharp reversal from the slowdown fears that dominated market sentiment in the latter half of 2025.
Equity Strategy Considerations
We could look at buying call options on the FTSE 250 index to capitalize on potential upward momentum in UK stocks.
