The UK’s Q1 GDP growth of +0.7% q/q was influenced by a surge in exports linked to preemptive actions before US tariffs. This factor is expected to reverse in Q2, alongside challenges in the manufacturing sector.
Estimates for Q2 GDP indicate a marginal growth of +0.1% q/q, which may contribute to the Bank of England’s cautious approach to monetary policy. Analysts at Barclays expect a +0.2% q/q reading, contingent on the absence of revisions to prior months’ data, attributing Q1’s robustness to temporary factors like increased US demand and an April stamp duty change.
Predictions From Morgan Stanley
Morgan Stanley predicts a static 0.0% q/q for the headline estimate, though they acknowledge the potential for a slight increase to +0.1% q/q. This prediction takes into account a possible downward revision for May and an anticipated moderate rise in June activity.
With the preliminary Q2 GDP figures for the UK due tomorrow, August 15th, 2025, the market is braced for a significant slowdown. The consensus estimate is for growth of only +0.1%, a sharp drop from the export-driven +0.7% we saw in the first quarter. This anticipation is setting the stage for increased volatility in sterling and UK equities.
Recent data from July 2025 already points to this weakness, with the S&P Global/CIPS Manufacturing PMI dipping to 48.5, indicating a contraction. Coupled with inflation that remains stubbornly above target at 2.3%, the Bank of England’s hands are tied. We believe these economic cross-currents will limit any upside surprises.
For traders positioned for a disappointment, buying short-dated puts on the FTSE 100 or the GBP/USD pair offers a direct way to profit from a negative reaction. A GDP reading of 0.0% or lower could easily push the pound below the 1.2400 level it has been testing. Bear put spreads could also be used to lower the entry cost of such a trade.
Opportunities In Volatility
Given the potential for a surprise, some may prefer strategies that benefit from volatility itself. A straddle using at-the-money options on a currency ETF tracking the pound could capture a significant price swing, regardless of whether the GDP number beats or misses expectations significantly. This is a play on the expectation that the +0.1% consensus is fragile.
We saw a similar trading environment during the economic slowdown in late 2022, where uncertainty around GDP figures led to sharp, short-term moves in the pound. Back then, traders who positioned for volatility ahead of key data releases were rewarded. History suggests that initial reactions to these figures can be overblown, creating secondary trading opportunities.
Looking ahead, a weak GDP print will almost certainly be cited by the Bank of England in their September meeting as a reason to remain on hold. This cements the view that UK interest rates have peaked for this cycle, which will keep a lid on gilt yields. Traders in interest rate futures should be prepared for a dovish shift in tone from policymakers.
