UK preliminary GDP grew 0.6% quarter-on-quarter in Q1 2026, up from 0.1% in Q4 2025. The result matched the 0.6% market forecast.
Annual GDP rose 1.1% in Q1 2026, versus 0.8% expected and 1.0% in Q4. Monthly GDP increased 0.3% in March, after 0.4% in February (revised from 0.5%), and against a forecast 0.2% fall.
Growth Data Beats Expectations
In March, Industrial Production fell 0.2% month-on-month, while Manufacturing Production rose 1.2%. Both readings were better than expected.
After the release, GBP/USD was down 0.01% at 1.3520. The GDP release time was 06:00 GMT.
Ahead of the report, markets expected Q1 GDP at 0.6% and March GDP at -0.2%. Forecasts also pointed to Manufacturing at -0.2% after -0.1% in February, and Industrial Production at -0.4% after 0.5% in February.
The Bank of England kept the Bank Rate at 3.75% on 30 April, with one vote for a 0.25-point rise. UK inflation was 3.3% year-on-year in March, and local elections were held on 7 May.
Market Reaction Stays Muted
The first quarter’s 0.6% GDP growth is now in the rearview mirror, and its failure to lift the Pound tells us everything. With GBP/USD trading flat around 1.3520, the market is clearly more concerned about future risks than this backward-looking data. This lack of a positive reaction to good news is a significant signal for us.
The dominant factors are the ongoing war in Iran and the political instability following the May 7 local elections. We are seeing investors demand a higher premium to hold UK assets, with the yield spread between 10-year UK gilts and German bunds widening by over 5 basis points this past week. This indicates that political and geopolitical risks are outweighing the positive economic print.
This puts the Bank of England in a difficult position for its next meeting. While March inflation stood at 3.3%, which would normally support a hawkish stance, the escalating conflict and domestic uncertainty increase the risk of a sharp slowdown later this year. Forward-looking inflation swaps are now pricing UK inflation to remain stubbornly above 3% for the next two years, severely limiting the BoE’s ability to support growth.
Given this backdrop, strategies should lean towards a weaker Sterling in the coming weeks. The failure to break above the 1.3650 resistance level suggests that the path of least resistance is downwards. We should consider buying put options to protect against, or profit from, a potential drop toward the key support level at 1.3450.
We’ve seen this pattern before, such as during the initial recovery from the pandemic in 2022, where strong data was often ignored due to overriding geopolitical events. While the 0.3% monthly GDP growth in March was a surprise, it likely does not capture the full economic impact of the more recent escalation in Iran. The market is pricing in the future, not the past.
