is trading at 1.3366, up 0.69% on the day. Other quotes put the pair at 1.3369, up 0.70%, or 93 pips. The pound has moved steadily higher through the European session. At 6:15 a.m. ET it was at 1.3341, up 0.51%. By mid-morning it had extended the gain to near 1.3370.
The move caps a sharp turnaround. On Wednesday, October 14, after the hot U.S. consumer price report, cable fell to 1.3137, its lowest level since late June. That was a 15-week low. Over the four weeks to that low, the pound lost 2.18% against the dollar. From 1.3137 to 1.3366, sterling has now recovered 229 pips, or 1.74%, in two and a half sessions.
The daily closes show the path. GBP/USD closed at 1.3210 on Monday, October 12, then 1.3257 on Tuesday. Wednesday’s close was 1.3231 after the intraday drop to 1.3137. Thursday closed at 1.3272, with a range of 1.3222 to 1.3278. Friday’s rally has added another 94 pips on top of that.
The pair is up on the week. From Monday’s 1.3210 close to the current 1.3366, cable has gained 156 pips, or 1.18%. Over the past seven days, the gain is 0.87%. Over a month, the pound is up 0.02%, essentially flat. Over 12 months, it is down 0.43% to 0.48%.
The 52-week range is 1.3009 to 1.3869. At 1.3366, cable sits 357 pips above the 52-week low and 503 pips below the 52-week high. The six-month high was 1.3654 on August 24.
Sterling is outperforming the euro. is up 0.34% to 1.1259, while GBP/USD is up 0.69%. That pushed down 0.34% to 0.8421. The pound is rising against both the dollar and the euro, which means the move is not just about dollar weakness. UK-specific factors are adding to it.
Three forces are driving the rally. First, the UK economy grew in August when economists expected a contraction. Second, markets now expect the Bank of England to raise rates on November 5, its first hike in more than three years. Third, the dollar is weakening after Fed Chair Kevin Warsh gave no signal of an October Fed hike. The next sections examine each one, along with the risks.
The GDP Surprise: 0.1% Growth Instead of a Contraction
Thursday’s GDP data from the Office for National Statistics started the pound’s rally.
The UK economy grew 0.1% in August. Economists expected a contraction of 0.1%. July’s growth was 0.4%. The economy has now grown in each of the last several months despite high energy costs and rising borrowing rates.
The three-month figure was stronger. GDP grew 0.7% in the three months to August, compared with the prior three months. The consensus was 0.5%. It was the fourth straight month in which growth beat forecasts. Year over year, GDP grew 2.1%, above the 1.7% forecast and up from 1.8% in July.
Services drove the growth. Services output rose 0.9% in the three months to August, after 0.7% growth in the three months to July, which was revised up from 0.6%. Services make up about 80% of the UK economy. Construction fell 1.0% over the three months, and production fell 0.2%.
Other data added to the picture. UK industrial output hit a nine-month high. Manufacturing output unexpectedly rose in August. The UK trade gap was the smallest in seven months. Retail sales growth picked up in September.
The quarterly trend is solid. UK GDP grew 0.6% in the first quarter of 2026 and 0.5% in the second quarter. If September is flat, third-quarter growth would be close to 0.7%. The next GDP release, including the first estimate for the third quarter, is on November 12.
Economists are raising their forecasts. A survey of economists this week raised the 2026 UK growth forecast to 1.3% from 1.1%. Forecasts for 2027 and 2028 were kept at 1.2% and 1.5%.
Sterling reacted immediately. After the data, the pound rose about 0.5% to around 1.325 to 1.328. Friday’s gains extended that move.
The growth data matters for the pound in two ways. First, a stronger economy attracts investment. Second, and more important for currency markets, strong growth gives the Bank of England more room to raise rates. A central bank worried about recession might hesitate to hike. A central bank looking at four straight months of upside surprises has less reason to wait.
For the forecast, the GDP data removes one of the main arguments against a November rate hike. That supports the pound through the November 5 decision.
Bank of England: 54 of 63 Economists See a Hike to 4.00% on November 5
Expectations for a Bank of England rate hike are the main support for sterling right now.
Bank Rate is 3.75%, where it has been since December 18, 2025. The Bank held rates at its September 17 meeting in a 6–3 vote. The three dissenters voted for a hike.
The next decision is on Thursday, November 5, at 12:00 UK time, along with a new Monetary Policy Report. A survey of economists conducted October 12 to 14 found 54 of 63 expect the Bank to raise Bank Rate by 25 basis points to 4.00%. A month ago, about 90% of respondents expected rates to stay on hold for the rest of the year. The shift in expectations has been sharp.
A November hike would be the first rate increase in more than three years. The Bank cut rates through 2024 and 2025 and was expected to keep cutting in 2026 before the Middle East war began in February. Energy prices reversed that plan.
Beyond November, economists are split. Thirty of 61 expect another hike in the first quarter of 2027. That is just under half. The rest expect the Bank to pause after November.
Inflation is the reason. UK consumer price inflation rose to 3.1% in August from 2.9% in July. The Bank expects inflation to rise toward 4% in the coming months. It has said that level would require a policy response. Economists forecast inflation averaging 3.6% in the fourth quarter of 2026 and 3.8% in the first quarter of 2027, before easing to 3.0% in 2027.
Two members of the Monetary Policy Committee are pushing hard for action. External member Megan Greene and chief economist Huw Pill both warned in Bangkok this week against waiting for more evidence of inflation. Both have been voting for rate increases, citing the risk of second-round effects and the need to move quickly.
The rate comparison with the U.S. matters for cable. The Fed’s target range is 3.75% to 4.00%. A BoE hike to 4.00% would bring UK rates up to the top of the Fed’s range. Markets now price an 85% chance the Fed holds on October 28. If the BoE hikes on November 5 and the Fed holds, the interest rate gap moves in the pound’s favor.
For the forecast, the November hike is mostly priced in. That means it supports the current level but may not drive large additional gains on its own. The bigger risk for the pound is if the BoE surprises by holding. That would likely send cable sharply lower.
Bailey in Bangkok: “Quite Subdued” Second-Round Effects
Governor Andrew Bailey spoke at the Institute of International Finance meeting in Bangkok on Friday. His comments were more cautious than some of his colleagues’.
Bailey said there is little evidence yet of inflation becoming embedded in UK price and wage-setting. To the extent the Bank has seen evidence, he said, it is quite subdued. He added that it is too early to judge. Businesses are focused mainly on cutting costs, he said, rather than raising prices to cover higher energy bills.
That message is slightly less hawkish than the market expected. The Bank is watching for second-round effects, which happen when companies raise prices and workers demand higher wages to cover rising costs. If those effects stay limited, the Bank has less reason to raise rates aggressively.
Bailey also had positive things to say about the economy. He said the UK economy is proving more resilient than the Bank expected. That supports the case for a hike, since a stronger economy can handle higher rates.
He has argued that current policy is already restrictive. The Bank had planned to cut rates this year before the Iran conflict began in February. Holding rates at 3.75% instead of cutting has the same effect as tightening, in his view.
Bailey’s tone has hardened since September. In late September, he warned that persistently high energy prices would make it harder to keep rates on hold. He said the Bank could not wait for complete evidence on inflation expectations. He has also said that looking through an energy shock only works while inflation expectations stay anchored.
Bailey said Middle East news is the biggest factor moving UK gilt yields. That underscores how much the pound depends on events outside the UK.
He also said the UK budget deficit is on a declining path. That is a positive signal for gilt markets ahead of the October 28 Budget.
The market reaction to Bailey was limited. The pound continued to rise through the morning after his comments, helped by dollar weakness. His caution on second-round effects was balanced by his comments on economic strength.
For the forecast, Bailey’s comments keep the November hike as the base case but reduce the odds of an aggressive tightening cycle. That caps how far the pound can rally on BoE expectations alone.
Gilts at 5.38%: Yields Near the Highest Since 2007
UK government bond yields are high, and their direction matters for the pound.
is at 5.3765% today, up slightly from Thursday’s close of 5.3739%. Thursday’s trading range was 5.3056% to 5.3804%. The yield fell below 5.35% intraday on Thursday, the lowest in three weeks, as global investors bought bonds during the equity selloff.
Gilt yields have come down from their recent peak. The 10-year was at 5.4542% on October 13 and 5.4203% on October 14. Earlier this month, it reached 5.46%, close to its highest level since July 2007. The 10-year yield is up 0.88 percentage points from a year ago.
Long-dated gilts are even higher. In September, the UK sold 30-year bonds at a yield of 5.8168%. That was the highest borrowing cost since the Debt Management Office was founded in 1998.
The UK pays more to borrow than the U.S. The 10-year gilt yields 5.38%, while the 10-year Treasury yields 5.09%. That 29-basis-point gap favors the pound, since investors earn more holding UK bonds.
Higher yields are not always good for the pound, however. If yields rise because of strong growth and a hawkish central bank, the pound usually benefits. If yields rise because investors worry about the government’s finances, the pound often falls, because investors are selling UK assets. That happened in 2022, when the mini-budget sent gilt yields soaring and the pound to a record low.
Right now, both forces are at work. Part of the rise in gilt yields reflects BoE hike expectations and global inflation. Part reflects concern about UK public finances ahead of the October 28 Budget.
The recent pullback in yields has been healthy for the pound. Yields fell as global investors moved into government bonds during the AI-related tech selloff. That reduced pressure on UK fiscal finances without hurting the BoE outlook.
The benefited too. London’s main index rose 115.49 points to 10,840.35 on Thursday, its highest close since late August. Pharmaceutical and consumer staples stocks led the gain.
For the forecast, gilt yields between 5.30% and 5.45% are supportive for the pound. A move above 5.50% driven by fiscal fears would be negative. A drop below 5.30% combined with a BoE hike would be the best outcome for sterling.
The October 28 Budget: Healey’s Fiscal Headroom Shrinks
The UK Budget on October 28 is the biggest domestic risk for the pound over the next two weeks.
Chancellor John Healey will deliver his first Budget on October 28. The Office for Budget Responsibility will publish its fiscal forecast on the same day. HM Treasury will publish its forecasts for the UK economy on October 21.
The government’s fiscal headroom has shrunk. In the spring forecast, the headroom against the government’s fiscal rules was £23.6 billion. Higher gilt yields and rising inflation have reduced that cushion. Current estimates range from £11 billion to £20 billion. The Institute for Fiscal Studies put it at £20 billion on October 11.
Some estimates are lower. At peak gilt yields in September, one estimate put the headroom at about £13 billion. The government may need to close a gap of around £11 billion a year through tax rises, spending cuts or both.
Tax rises look likely. Economists widely expect the government to raise taxes to stay within its fiscal rules. The question is how large the increases will be and how markets will react.
Markets will judge the Budget on credibility. A Budget that meets fiscal rules with clear, credible measures would likely support gilts and the pound. A Budget that relies on optimistic assumptions or backs away from tax increases could push gilt yields higher. In the worst case, the 10-year gilt yield could rise toward 5.9%, according to some analysts.
The government is also under pressure to help households. Energy costs have pushed up living costs, and there is political demand for relief. Healey has pledged measures to provide some economic relief while keeping the commitment to reducing the deficit. Balancing those goals is the core challenge.
The IMF has welcomed the government’s plans to reduce the deficit. Bailey’s comment that the deficit is on a declining path also supports the government’s credibility.
The Budget timing overlaps with key events. It comes one day after the Fed’s October 27–28 meeting begins and one week before the BoE’s November 5 decision. The ECB also meets on October 29. That cluster of events makes late October a high-volatility period for the pound.
For the forecast, the Budget is a two-sided risk. A credible Budget could push cable above 1.3435. A Budget that unsettles gilt markets could send it back below 1.3200 quickly.
The Dollar Side: Warsh Neutral, DXY at 101.69
Half of every GBP/USD move comes from the dollar. On Friday, the dollar is weakening.
The fell 0.35% to 101.69 on Friday. It is on track for its first weekly decline in five weeks. Earlier this week, it reached an 18-month high near 103 after the hot September CPI report.
Fed Chair Kevin Warsh drove the move. Speaking in Bangkok on Friday, Warsh gave no signal about the Fed’s October 27–28 meeting. He said conditions had broadly conformed to the Fed’s expectations and that he does not prejudge meetings. Markets read that as reducing the odds of an October hike. Markets now price an 85% probability that the Fed will hold.
The U.S. data has been hot. September CPI rose 3.7% year over year, above the 3.6% forecast. Core CPI rose 0.3% for the month. September PPI rose 1.3% for the month and 6.3% over 12 months. Import prices rose 1.1% in September, above the 0.8% forecast.
Those numbers sent cable to its 15-week low on Wednesday. Sterling fell below 1.32 as stronger U.S. inflation reduced expectations of a Fed hold in October.
U.S. growth data has been mixed. September industrial production rose 0.7%, above forecasts. But underlying consumer demand, excluding energy spending, has shown signs of slowing. That points to a U.S. economy under pressure from high energy prices.
U.S. Treasury yields have eased. is at 5.09%, down from 5.33% after the CPI report. Lower yields make dollar assets less attractive, which supports GBP/USD.
The rate gap between the U.S. and UK is narrowing. With the Fed at 3.75% to 4.00% and the BoE at 3.75%, the U.S. currently has the edge. A BoE hike to 4.00% with the Fed on hold would close that gap. If the Fed hikes on October 28, the gap would widen again in the dollar’s favor.
U.S. politics matters too. The U.S. midterm elections are on November 3. The White House has pushed for lower rates. Political pressure on the Fed could weigh on the dollar.
For the forecast, the dollar’s direction depends on the Fed. A Fed hold on October 28 would keep the dollar soft and support cable. A surprise Fed hike would push GBP/USD back toward 1.3200.
