Global FX & Economics: BoE policy meeting preview
The desk argues that the BoE's upcoming policy meeting carries significant risks for the pound sterling, particularly amidst ongoing uncertainties regarding the UK's economic outlook. Per the full note from J.P. Morgan, the Bank of England's decision could be influenced by mixed data, including inflation trends and growth forecasts. Institutionally, consensus points towards a cautious stance on the pound, particularly as traders await more concrete signals from the BoE. With no major data releases in the immediate future, market focus is predominantly on the BoE meeting itself and its potential implications for currency positioning.
What the desk is arguing
The upcoming Bank of England policy meeting presents notable risks that could affect the pound sterling. Per the full note from J.P. Morgan, discussions led by economists Allan Monks and James Nelligan emphasize the uncertainty surrounding the UK economic recovery and inflation dynamics leading up to the meeting.
J.P. Morgan's commentary highlights the potential for divergence in monetary policy responses given that recent economic data has shown both strength and weakness within the UK economy. For instance, inflation remains above the BoE's comfort level, alongside signs of slowing growth, which could necessitate nuanced communication from the bank.
Where it sits in our coverage
Currently, our consensus target for GBP/USD is set at 1.075, with a range between 1.04 and 1.12. Key firms contributing to this consensus include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective aligns with the broader market sentiment, reflecting a cautious approach to the pound's future movements. Given the tight range indicated, the desk's forecast is more optimistic than the lower bound set by bofa.
How other firms see it
Most firms, including jpmorgan, suggest a cautiously bullish outlook on the pound in light of potentially hawkish signals from the BoE. In contrast, bofa maintains a more bearish stance, reflecting concerns about persistent economic challenges.
Traders should pay attention to correlated movements in GBP/EUR as both currencies adjust to central bank communications regarding policy changes.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The BoE policy meeting is a pivotal event affecting the sterling's outlook.
- 02Mixed economic data is leading to a cautious market stance.
- 03Consensus amongst firms suggests a range-bound GBP/USD performance.
- 04Economic recovery trajectories will dictate future BoE policy adjustments.
Market implications
Traders should closely monitor GBP/USD levels around 1.075, as volatility may increase leading up to the BoE meeting. Positioning may shift significantly based on the tone of the post-meeting statements or any unexpected decisions.
Risks to this view
A significant shift in economic data, such as a surprising uptick in inflation or an unexpected economic contraction, could lead to a reevaluation of the BoE's policy stance, potentially reversing current expectations for the pound.
Hello, and welcome to the J.P. Morgan Patent and Rate podcast, where we discuss macro themes and views driving markets. This week, we've got our chief UK economist, Alan Monks, with myself, James Nelligan from FX Strategy, just to give a brief preview of the Bank of England meeting this week.
So looking at the kind of UK macro backdrop here, looks like particularly the growth data would suggest a dovish Bank of England, and the market is expecting a 25 basis point rate cut this week. But investors will be looking beyond that to the details of the votes and the guidance and the forecasts for a more of a forward looking view. So turning to you, Alan, how do you see the risks here around the BOE meeting this week?
And I'm looking forward, particularly on the vote this week, what's what you're thinking around any potential surprises to your, your forecast for a three way split there? Yeah, so I think the MBC are going to be quite divided here, as they have been in previous meetings. But I think this time around, maybe the extremes are going to get sort of larger in the sense that you mentioned weak growth data, for me, it's probably the labour market data that stand out in terms of giving you the clearest signs of weakness, you've got vacancies falling sharply, the unemployment rate rising.
So if you're on the dovish end of the spectrum, I think you can really point to that and say that that measure of tightness in the labour market is, it's actually at its lowest since around 2014. So it really does suggest a lot of slack is building up. On the other hand, if you look at inflation outturns, the surprises that we've seen there, not just on headline, but if you look at the Bank of England's poor services, inflation measure that's stuck about 4% annualised, and hasn't really shown much of a step down for the past year now.
So I think this is going to be an issue, obviously, for the Hort, they'll probably emphasise that element. So it's kind of finding a balancing act. And I think when they've been in this situation before, you know, they've tried to find a compromise, which has been gradual rate cuts.
And that's, you know, that's probably the path that they stay on. Now, I think, obviously, they didn't go in June, so they're almost due a cut in August if they stick to that path. But I think if you look at the vote, my expectation there is that it's a 2-5-2, so you've got two dissents for a 50 base point cut from Taylor and Dhingra, and then two dissents for unchanged rates from Mann and Pill, and then you've got these five consensus voters in the middle.
So that would be the same kind of votes that we had in May. So I'm expecting something along those lines. I mean, where are the risks around that?
I suppose my advice would be to say, if you put me in the situation with that set of data, I'd probably want to put more weight on the labour market weakness because, yes, you've got sticky inflation. But if you are seeing such a clear weakening in the labour market, I think you can show that that's going to moderate wage growth in the labour market. I can see slightly more of the committee perhaps being moving closer to that argument, even if it's not reflected fully in the vote.
So I'm expecting some slight dovish, incremental dovish change. But obviously, they've got to be quite careful here, given that we haven't yet seen the new peak inflation. So they'll be sort of sitting on the fence here.
I suppose in terms of the forecasts, I mean, yes, they've got to take inflation higher in the near term. So probably looking at a peak of 3.7 instead of 3.5 in the third quarter of this year. But I think if they're going to mark down their growth forecast from the second half of this year, higher unemployment rate, more slack, that should help them to lower their inflation forecast further out in years two and three.
So given that's based on market rates, it would be a sort of very subtle, gentle pushback, suggesting that there's maybe a slight bias that they could go a little bit more quickly relative to market expectations. But I think people probably put a little bit less emphasis on those forecasts. Now, the thing that everyone's really sort of focused on is the forward guidance, which I think you mentioned earlier.
And I suppose the simplest thing that they could do here is just stick to the same guidance. They could say it's gradual and careful, and that would probably be the path of least resistance, signaling sort of quarterly cuts ahead. But I do think at the same time that if you actually look at the voting behavior of the NEC over the past couple of meetings, there's actually more members that want something that's not quarterly cutting pace.
So you've got two voting on hold, two voting for 15 and Ramson voting for back-to-back cuts. So I do actually think that's perhaps quite a good case for them changing the guidance and updating it so it's got more of a sort of majority support from the committee, if you see what I mean. So it's difficult to do that without potentially adding volatility to markets.
But I think if they were to say something like, and it wouldn't just drop the word gradual, but if they were to say something like some further easing is necessary, but the pace of that easing will be determined by the balance of risks that we see. On the one hand, labor market weakness, and on the other hand, inflation persistence. That wouldn't give you a lot of leading information, but it would set them up quite nicely, I think, to respond to data surprises as they came in.
And it would help them to pivot to one of the more extreme options, which would be either going back-to-back cuts or potentially going on hold. So that's my sort of view on the guidance there, but I appreciate that there's maybe a little bit complicated, and perhaps the easier thing for them to do is just to stick to where they were before. So turning to you, James, what are your views on the currency and what do you think, from sterling market perspective, will be the main things that people are watching out for and reviews looking forward?
Thanks, Alan. Yeah, so in terms of the currency view here, we're continuing to run a bearish view on sterling, particularly versus the European currencies, rather than the dollar necessarily. So that's based partly on the kind of softer UK growth and labor market backdrop that Alan was discussing there, as well as more of the kind of market positioning, valuations, carry dynamics as we build up to the autumn budget in the second half of the year in the UK.
So for Bank of England specifically, I think the currency will react initially more to the vote. And there's a Bloomberg survey across the street just showing a median consensus for the 252 on the vote in line with Alan's thinking there. So if we did see, as Alan says, like more of an extra dovish dissenter, say from Ramsden, then you could see sterling kind of knee-jerk weaker more on that.
I think that will drive the kind of initial reaction, assuming that the rate cut is obviously delivered. After that, it's going to be more about the guidance than the forecast setting. I think sterling pays attention to the guidance a bit more than the forecast.
The forecasts are a bit somewhat constrained, as Alan was saying, by kind of sticky near-term inflation. So anything in the statement, as you were saying, Alan, that kind of hints at a potentially easing pace a little bit quicker than gradual or quicker than quarterly, and we'd expect sterling to react quite significantly to that. So saying you could have Euro sterling potentially testing 88 on the day.
But as you say, Alan has said, it's tricky for Bank of England to kind of make that kind of more significant dovish shift on the guidance at this stage. But just going back to the broader view on the currency, I think we think the market in terms of positioning the market trying to run a kind of cable long back in May and June as a kind of more carry efficient structure with the UK economy seen as more services oriented, a bit more resilient to global tariff uncertainty than peers. And while the market is still net long sterling, some of that positioning started to migrate over to a short on the European crosses, given the more kind of idiosyncratic UK growth issues associated with fiscal policy, tax policy, the budget, the labour market.
And that's what we like from a valuations perspective, particularly heading into, as I say, the autumn budget later in the year. So if you look at fair value dislocations for sterling on crosses like Euro sterling, it's around two pence above fair value at the moment relative to five pence above fair value back in, say, 2022, when you had the trust budget episode. We're not making the case that another trust budget is on the cards, but we are saying that given the growth backdrop and the potential feedback loop between growth and fiscal tightening, then the risk premium in sterling probably does have room to expand from here relative to those historical episodes of uncertainty around growth and fiscal policy.
That's all from us today. Thanks for listening in. This communication is provided for information purposes only.
Please refer to JPMorgan research reports related to its content for more information, including important disclosures. 2025 JPMorgan Chase & Company, all rights reserved. This episode was recorded on August 5th, 2025.
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