BNP Paribas Warns of UK Growth Slowdown and Higher Interest Rates

BNP Paribas strategists are warning of a slowdown in United Kingdom (UK) growth to 1% in 2026, down from 1.3% in 2025. This decrease is attributed to renewed inflation pressures triggered by the war in Iran, which is expected to push inflation up to 3.2%. The Bank of England (BoE) may respond with a 25 bp rate hike in H2 2026.

The strategists also anticipate that 10-year gilt yields will remain elevated in 2026 before falling to 4.30% in 2027 due to reduced net supply and decreased political risk premia. This decrease is expected to lead to a depreciation of the British Pound (GBP) against the US Dollar (USD).

In the context of these predictions, monetary policy will likely shift towards tighter conditions, rather than easing as initially anticipated.