Sterling held above $1.335, its strongest level in a month, after stronger-than-expected UK economic data reinforced expectations of a Bank of England rate hike next month. UK inflation accelerated to 3.5% in September, its highest reading since October 2025 and above the 3.4% consensus, driven largely by higher motor fuel prices. Both core and services inflation also surprised to the upside.
Public sector net borrowing rose to £24.5 billion, overshooting forecasts ahead of next week’s Budget. These figures add to signs of underlying resilience in the UK economy, including an unexpected fall in unemployment, 0.1% GDP growth in August, and a narrower trade deficit.
Markets are now fully pricing in a 25-basis-point increase in Bank Rate in November. The Bank of England remains the only major central bank yet to begin a tightening cycle. However, recent comments from Governor Andrew Bailey, who indicated that a prolonged war could intensify pressure on policymakers to act, suggest that the first rate hike may be close.
