LIVE MARKETS-British GDP growth not pressuring the BoE, say Berenberg

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BRITISH GDP GROWTH NOT PRESSURING THE BOE SAY BERENBERG

British GDP data beat expectations again in August, continuing a strong run, but even though inflation is also fairly hot, analysts at Berenberg suggest the nature of the GDP beat means the Bank of England doesn't need to rush to tighten policy aggressively.

Thursday's numbers lifted annual UK GDP growth from 1.8% year-on-year in July to 2.1% in August. "Following three years over which growth has averaged 1.1%, the acceleration through the 2% threshold gives the data some wow factor," said Andrew Wishart, senior UK economist at Berenberg.

However, the year on year growth is pretty narrowly based. Wishart points out just two sectors explain the recent pick up in growth, the "information and communication” and "professional, scientific and technical activities" sectors.

AI is almost definitely helping the former, and maybe the latter too.

As for the BoE, Wishart says "Economic growth driven by pockets of strength makes it tricky to set interest rates appropriately for the whole economy."

"However, the expansion in the two rapidly growing sectors of the UK economy has not resulted in any pick-up in employment. In fact, employment in both sectors has declined since the start of 2025."

As a result, we do not expect a traditional cyclical tightening of the labour market to follow. Thus, barring a renewed surge in energy prices, we remain content with our view that the BoE need only hike once, on 5 November."

(Alun John)

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