British Pound: Rate hike bets lift GBP, but upside looks limited - BBH

BBH’s Elias Haddad highlights that GBP is stronger against major currencies as UK August labor data bolster expectations for a 25 bps Bank of England (BoE) rate hike to 4.00% on November 5. Employment and unemployment figures beat the BoE’s projections, while wage growth suggests sticky services inflation. However, Haddad argues the BoE may not need to tighten as much as markets expect, posing a headwind for the Pound.

BoE tightening expectations lift Pound

"GBP is up against most major currencies. UK August labor market data reinforced the case for a BoE 25bps policy rate hike to 4.00% on November 5."

"In the three months to August, the employment rate increased +0.2ppt to 75.3% while the unemployment rate decreased -0.2ppt to 4.7%, suggesting more people are finding work. The unemployment rate is the lowest since July 2025 and tracking below the BoE’s Q3 projection of 5.0%."

"The policy-relevant private sector regular pay growth matched consensus and the BoE’s Q3 projection at 3.0% y/y vs. 2.9% in July. But wage growth also suggests services inflation will remain sticky well above the bank’s 2% target."

"The swaps curve implies 95% odds of a November BoE rate hike and 100bps of tightening in the next twelve months. In our view, the BoE may not need to tighten as much as markets anticipate, which is a headwind for GBP."

"The UK economy is operating below capacity, the policy rate is near the top of the BoE’s estimated 2% to 4% neutral range, and fiscal policy will likely turn more restrictive following the October 28 UK budget."

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