Why the Bank of England might not be as hawkish as you think
At a Glance
The desk believes that the Bank of England (BoE) is unlikely to adopt a hawkish stance in the near term, as indicated by the source commentary discussing the upcoming September 17 meeting. Per the full note, the expected 6-3 vote will likely see rates held steady at 3.75%, with inflation pressures remaining contained primarily to energy costs, particularly rising natural gas prices. With the consensus reflecting targets around 1.36 for GBP/USD, the market seems positioned for a cautious approach, and traders should watch for possible shifts in the BoE's communication regarding future rate hikes as energy prices evolve.
Key Takeaways
- 01The Bank of England is likely to keep rates on hold at 3.75% in the upcoming September meeting.
- 02Rising natural gas prices pose an inflation risk but are not seen as broadly impacting other areas.
- 03A November rate hike depends on energy price trends; consistent high prices may trigger reconsideration.
- 04Market consensus for GBP/USD targets remains at 1.36, reflecting caution amid economic uncertainties.
Full Analysis
What the desk is arguing
The desk argues that the Bank of England is set to remain cautious ahead of its September 17 decision, likely keeping rates at 3.75%. This sentiment is supported by the source which notes that inflation risks are currently localized to energy and not broadening across the economy.
The BoE’s potential decision to maintain the status quo is underscored by the challenges presented by soaring natural gas prices, which could elevate inflation metrics. As highlighted in the source, a November rate hike is contingent upon sustained increases in energy prices, but fundamental evidence suggests inflation risks from second-round effects are limited.
Where it sits in our coverage
Our consensus target for GBP/USD is 1.36 with a range from 1.24 to 1.38, showcasing the cautious outlook from multiple institutions. The following firms align closely with this forecast for December 2026, reflecting a consensus view: - RBC: 1.3600 - Goldman: 1.3600 - HSBC: 1.3500
This desk's stance aligns with the lower end of the consensus range, reflecting broader market apprehension regarding the BoE's next moves.
How other firms see it
Firms such as Morgan Stanley and Barclays project higher targets for GBP, with Morgan Stanley anticipating 1.4700 by December 2026, suggesting more bullish sentiment exists regarding GBP/USD. Conversely, Nomura is taking a more bearish stance with a target of 1.2900, indicating division in outlook.
Notably, the relationship between GBP/USD and the performance of EUR/GBP could influence this discussion, reflecting market sensitivity to BoE policy changes and broader macroeconomic indicators like inflation trends.
Market Implications
Traders should closely monitor the GBP/USD level around 1.36 in relation to any shifts in energy pricing or BoE communications post-meeting. Additionally, the market's anticipation of future cuts could influence positioning strategies leading into the end of the year.
GBP/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Neutral | 1.3500 |
UBS | Bullish | 1.5000 |
UOB | Bullish | 1.3700 |
From the original
Articles Why the Bank of England might not be as hawkish as you think Published 11:06 United Kingdom Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Rising natural gas prices pose a serious headache for the Bank of England ahead of its 17 September me
Related speeches
4 itemsBank of England leans dovish as it keeps rates on hold
The desk interprets the Bank of England's recent decision to maintain its benchmark interest rate at 3.75% as a clear dovish signal, suggesting a sustained pause in tightening policy. Despite a notable 6-3 vote among committee members where one additional vote expressed support for a hike, the overall tone reflects increased caution regarding inflationary pressures from the energy sector. Per the full note [source], officials have shown growing confidence that rising energy prices will not ignite broader inflation, aligning with data indicating subdued wage and price expectations from businesses.
Bank of England some way off a rate hike despite energy price spike
The desk interprets the Bank of England's position to keep rates on hold, despite rising energy prices, as a signal of a cautious approach to monetary policy. Per the full note from ING, the BoE is unlikely to hike rates at the upcoming meeting on July 30, with expectations of inflation peaking at around 3% later this year, which remains well below their 4% trigger level for significant second-round effects. Although recent energy market surges pose a challenge, they are not considered sufficient to warrant an immediate rate adjustment, likely preserving the current rate environment and keeping traders on alert. With no high-impact events slated on the economic calendar in the next few weeks, the potential for a change in sentiment seems limited at this time.