British Pound: BoE holds but inflation risks linger – OCBC

OCBC strategist Christopher Wong notes that the Bank of England (BoE) kept Bank Rate at 3.75% in a 6–3 vote while highlighting a more challenging inflation backdrop, with Consumer Price Index (CPI) seen near 3.75% in Q4 and above 4% in early 2027. British Pound (GBP) weakened as gilts rallied on a QT overhaul. Wong sees limited support from already-priced tightening and focuses on wage and price dynamics.

Rates support capped by inflation risks

"The BoE kept Bank Rate unchanged at 3.75% in a 6–3 vote, while acknowledging a more challenging inflation backdrop. CPI is now expected to rise to around 3.75% in 4Q and slightly above 4% in early 2027, largely reflecting higher energy prices. BOE nevertheless noted that there has been little evidence so far of material second-round effects in wages and prices."

"GBP weakened overnight even as broader USD/UST yield eased. The larger market reaction was in gilts, where 30y yields fell around 12bp, helped by the BoE’s decision to overhaul its QT program and paused active gilt sales for six months."

"While the near-term rates backdrop may marginally be supportive for GBP, but much will depend on whether higher energy costs start feeding more broadly into domestic inflation. Markets are already pricing a high probability of further tightening (nearly 100bps priced till Jul-2027), which may limit the incremental support from rate expectations alone. Further evidence of easing wage and price pressures would challenge that pricing. Against USD, relative rate dynamics remain important given the Fed’s own tightening path."

"GBP was last at 1.3360 levels. Daily momentum is bearish but RSI fell into oversold conditions. Some retracement higher is not ruled out intra-day but bias skewed towards fading the bounce (if any). Resistance at 1.3420 (38.2% fibo retracement of 2026 high to low), 1.3480 (50 DMA). Support at 1.3310 (23.6% fibo), 1.3270 levels."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)