UK growth surprise raises prospect of another BoE rate hike in December

The headline reports that a stronger-than-expected UK growth reading has increased the likelihood that the Bank of England will raise interest rates again at its December meeting. The transmission channel runs through inflation expectations and policy repricing: stronger activity data signals persistent demand pressure, which feeds into sterling interest rate expectations and pushes up gilt yields as markets price a higher terminal rate. Sterling and short-dated gilts are the most directly exposed, as the rate differential against peers such as the Federal Reserve and the ECB shifts in favour of the pound, with rate-sensitive domestic equities and housing-linked stocks facing pressure from higher borrowing costs. The next key catalyst for traders is the UK monthly inflation release and the labour market data, since sticky services inflation or wage growth would reinforce the case for a December move.

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