Synopsis:

ANZ remains bearish on GBP, noting that growth remains fragile despite a stronger-than-expected Q4 GDP print. They recommend selling into short-term rallies, as downside risks persist.

Key Points:

• UK GDP Beat Expectations, But Fragility Remains:

  • Q4 GDP rose 0.1% q/q, avoiding the contraction expected by the BoE and consensus.
  • However, growth was largely driven by government spending (+0.8% q/q), while private consumption remained stagnant.
  • Given the UK’s limited fiscal flexibility, government-driven growth may not be sustainable.

• More Downside Potential for GBP in the Medium Term:

  • The BoE’s easing cycle, fragile economic fundamentals, and external risks could weigh on GBP.
  • CFTC positioning data shows increased short GBP positions, reinforcing bearish sentiment
  • ANZ sees any near-term rallies as selling opportunities for further declines.

Conclusion:

Despite a stronger-than-expected Q4 GDP, GBP remains vulnerable, and ANZ sees short-term strength as an opportunity to sell. The structural bearish case for GBP remains intact due to fiscal limitations, BoE policy trajectory, and weak private-sector growth.