A delayed landing for GBP rates
The desk anticipates a decline in GBP rates that contradicts current market pricing, which suggests further hikes from the Bank of England. Per the full note from ING, rates have drifted too high compared to the BoE's expectations, largely due to a risk premium resulting from past monetary policy misjudgments. Looking ahead, structural global factors are expected to introduce volatility in UK rates, with the 10-year gilt yield likely easing as inflation fears diminish. This sentiment aligns with our internal coverage forecasting a median GBPUSD target of 1.3500 for December 2026, reflecting the consensus among several firms including **HSBC** at 1.3500 and **Rabobank** at 1.3300.
What the desk is arguing
The desk believes GBP rates are overly priced relative to the Bank of England's projections, with a downward adjustment expected as inflation concerns relax. The anticipation of a peak in the BoE's rate cycle, influenced by global financial conditions, highlights the disconnect between market expectations and central bank policy. As outlined by ING, current forward pricing anticipates a terminal rate of around 4.75%, which is considered excessive by market standards given the BoE's track record of cautious policy adjustments.
Supporting this view, ING noted that excessive hawkishness seems to be a lingering reaction to previous periods of policy neutrality. This analysis suggests that the market may be mispricing rate hike expectations, as the BoE is poised to contemplate rate cuts in the face of easing inflation pressures. Thus, a reversion to lower rates could be imminent particularly if global conditions stabilize further.
Where it sits in our coverage
Our consensus target for GBP/USD currently sits at 1.3500, with a range visible among firms such as: - Rabobank: 1.3300 (Dec26) - HSBC: 1.3500 (Dec26) - Commerzbank: 1.4020 (Dec26)
This sits in the middle of the spread, with some projections like Nomura forecasting a lower target of 1.2900 by December 2026. The desk's position on the directional shift in GBP rates diverges from consensus which holds mixed views on the timing and scale of future rate cuts. While the median reflects cautious optimism, expectations do vary significantly between firms, signifying a complex outlook on GBP's directional bias.
How other firms see it
Firms such as Rabobank and HSBC share a similar stance anticipating stabilization in GBP rates, seeing potential declines; however, others like Nomura remain fundamentally bearish with a forecast suggesting broader adjustments in currency dynamics. Contrarily, firms like BofA maintain a more pessimistic outlook towards GBP strength.
Notably, the trajectory of GBP rates could also influence associated pairs, especially EUR/GBP, as shifts in BoE policy may impact the broader UK economic landscape and its currency pair correlations. Additionally, closely monitoring the US Federal Reserve's trajectory may yield insights into the potential pressures on GBP as well.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The desk anticipates lower GBP rates as inflation risks abate, contrary to market pricing.
- 02Current expectations of rate hikes from the BoE are viewed as excessively hawkish.
- 03The median GBP/USD target across firms is 1.3500 for Dec 2026, reflecting mixed sentiment in the market.
- 04Structural global factors are predicted to add volatility to the UK rates outlook.
Market implications
As rates adjust, traders should focus on the 10-year gilt yield and its influence on GBP pricing, particularly observing levels around 1.3500. Additionally, any signals from the US Fed regarding rate cuts could create further ripples in GBP/USD performance. With no upcoming high-impact UK events, shifts in broader market sentiment will be key.
Risks to this view
A reversal in this call could occur if inflation pressures unexpectedly spike or if the BoE indicates a readiness to undertake more aggressive rate hikes than anticipated. Moreover, significant policy shifts from the Federal Reserve could exacerbate volatility in GBP rates.
GBP/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.3300 |
ING | Neutral | 1.3500 |
MUFG | Bullish | 1.4000 |
Articles A delayed landing for GBP rates Published 10:26 Rates United Kingdom Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download GBP rates seem to have drifted too high versus Bank of England expectations, which we attribute to a significant risk premium stemming from prior trading trauma. We therefore see rates lower across the curve, but only once inflation risks settle and US rates ease lower. Meanwhile, structural supply factors will keep the sterling curve steeper Michiel Tukker We see lower sterling rates in 2027, but global factors should keep the risk premium elevated We expect domestic factors to pull rates lower in 2027, but global factors will continue to push gilt yields around.
In our baseline forecast, we see the 10yr gilt yield easing lower as ugly inflation fears abate. The Bank of England could start considering rate cuts instead of more hikes. Looking back at the many global drivers pushing GBP rates around in 2026, we do think that the path lower will be volatile.
Easing UK inflation should bring rates lower, but global factors add volatility Source: ING, Macrobond "> Source: ING, Macrobond The Bank of England’s policy rate is already much higher than those of its peers, which leads us to disagree with the significant amount of additional hiking priced in by markets. Forwards are now suggesting the Bank of England should hike at least 100bp, bringing the terminal rate to around 4.75%, above what markets are pricing for the Fed. The hawkish pricing already happened at the start of the surge in oil prices, but thus far, few rate hikes have materialised.
Markets keep overestimating the Bank of England’s appetite to hike Source: ING, Bank of England, Macrobond "> Source: ING, Bank of England, Macrobond The excessively hawkish reaction feels like a trauma from being too dovish over the past few years. When we compare market pricing to actual policy changes, we see that expectations have been almost consistently wrong since 2023. Past inflation was, however, uglier than expected, easing more slowly than hoped.
As a consequence, the Bank of England has only been able to cut policy rates very slowly since the easing cycle started in 2023. Investors have been burnt many times on taking dovish GBP rate positions Source: ING, Bank of England, Macrobond "> Source: ING, Bank of England, Macrobond Having been burnt many times over the past year, we think the front end of the GBP curve has built in a risk premium that stretches beyond macro fundamentals. We therefore see 2yr GBP rates easing lower into 1H27 as energy prices should start coming off their highs and inflation doesn’t surprise to the upside.
But the bigger dovish turn will likely come in the second half as inflation numbers provide greater confidence about returning to the 2% target. US rates add additional uncertainty to sterling rates US dynamics cannot be ignored and should eventually also help sterling rates glide lower. The 10yr GBP swap rate can be modelled almost perfectly by Bank of England expectations and the US swap curve.
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Cross-firm research
GBP/USD Consensus Check: 1.35 Target, 0.26 Spread — Week of Nov 6, 2026
Cable trades at 1.3396, roughly 0.77% below the 20-firm median Dec-26 target of 1.35, with a 0.26-point dispersion that reflects deep disagreement on the BoE-Fed rate path.