Will Bank of England Still Cut Rates in 2026? Falling Inflation Favors Loose Monetary Policy, Pound Exchange Rate May Struggle to Sustain Strength. - TradingKey

What the desk is arguing

The desk posits that the Bank of England is likely to pursue rate cuts in 2026, driven by a decline in inflation rates. This perspective aligns with the recent commentary from TradingKey, which highlights that a softer inflation outlook favors a more accommodative monetary policy stance.

Supporting this view, the latest inflation figures indicate a downward trend, with the Consumer Price Index (CPI) showing a reduction to 2.5% in September, down from 3.2% earlier in the year. Such data reinforces the expectation that the BoE may prioritize economic growth over inflation control, potentially leading to a weaker pound.

Where it sits in our coverage

Our consensus target for GBP/USD stands at 1.075, with a range of 1.04 to 1.12. Notably, jpmorgan has set a target of 1.10 for March 2026, while bofa is more conservative with a target of 1.04.

This view aligns with jpmorgan's stance, indicating a bullish outlook on the pound relative to the dollar, but diverges from bofa, which suggests a more bearish perspective. The desk's call is positioned at the upper end of the consensus range, reflecting a more optimistic view on the pound's potential recovery.

How other firms see it

Firms like jpmorgan and goldman are aligned in their expectations of a weaker pound due to anticipated rate cuts, while bofa and citi present a contrary view, suggesting that the pound may not sustain its strength against the dollar.

Traders should also keep an eye on the EUR/GBP cross-rate, as shifts in the BoE's policy could have significant implications for the euro's performance against the pound. Additionally, the trajectory of US inflation data will be critical in shaping the broader FX landscape.

What the calendar says

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