BoE Hold Looms as Markets Price 38bp of Sterling Tightening

According to ING's Francesco Pesole, the Bank of England (BoE) is likely to keep interest rates unchanged this week. A 7-2 vote in favor of leaving rates on hold remains the base case, although Catherine Mann could join Huw Pill and Megan Greene in supporting a rate hike.

Pesole argues that contained inflation projections would strengthen the case for rates to remain on hold for the rest of the year. This could lead to markets unwinding some of the 38bp of tightening priced by year-end, creating downside risks for the British Pound (GBP).

The rebound in EUR/GBP has further room to run, with prices now 1% above the July 15 low of 0.8455. While higher energy prices remain an upside risk to inflation, Pesole expects updated projections to show CPI peaking comfortably below 4%.