The UK’s GDP rose by 0.4% in June, surpassing the forecast of 0.1%, according to data from the ONS released on 14 August 2025. This comes after a previous decline of 0.1%. In the services sector, output increased by 0.3%, beating the expected 0.2%, following a prior increase of 0.1%. Industrial output grew by 0.7%, much higher than the forecasted 0.2%. The earlier figure was revised from -0.9% to -1.3%.

Manufacturing and Construction Performance

Manufacturing output met expectations, growing by 0.5% after a previous decline of 1.0%. Construction output rose by 0.3%, higher than the predicted no change, with the earlier figure revised from -0.6% to -0.5%. These growth figures show a stronger performance across various sectors, helping to boost the overall GDP. Services contributed about 0.25%, production 0.08%, and construction 0.02% to GDP growth. This suggests that the UK economy is more resilient as Q2 comes to a close, giving the Bank of England more options in its monetary policy. Given the surprising strength of this morning’s UK growth data, we should rethink the Bank of England’s next steps. The economy appears more resilient than previously thought, allowing policymakers to keep interest rates higher for longer. This lowers the likelihood of a rate cut soon.

Market Reactions and Predictions

The July 2025 inflation figures are still stubbornly at 3.1%, but this growth report allows the Bank to continue fighting rising prices. They no longer have to worry as much about pushing the economy into a recession in the process. This situation is similar to what occurred in 2023, when strong economic data consistently postponed expectations of a policy change. For interest rate traders, we should expect the SONIA futures curve to adjust sharply in the coming days. The market had been anticipating a 25 basis point cut by November 2025, but this now seems very unlikely. The wise approach is to withdraw bets on falling rates and prepare for short-term yields to stay elevated or potentially rise. This shift in rate expectations should support the pound. We expect the market to factor in a more hawkish Bank of England policy, making sterling more appealing. Traders might consider buying call options on GBP/USD, hoping for a move towards the 1.30 level, which was last seen in early 2025. However, it’s important to note that the strength of the economy isn’t as strong as the headlines suggest, with services doing most of the heavy lifting. Contributions from production and construction were positive but minimal. This indicates that the recovery is still narrow and may not maintain this pace. For those trading the FTSE 100, the situation is more complicated. A stronger economy is good for company profits, but long-lasting high-interest rates could be a challenge for stock valuations. We should expect more volatility, making strategies that benefit from price changes, like buying straddles, potentially useful in the upcoming weeks. Create your live VT Markets account and start trading now.

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