BNY Mellon analysts say the Bank of England’s adaptable stance on inflation supports the pound, offsetting reduced tightening expectations.
The British pound remains resilient despite diminished expectations for Bank of England rate hikes. Analysts highlight the central bank’s flexible approach to its price stability mandate, which avoids overreacting to supply shocks and supports GBP stability.
Domestic demand for Gilts and positive real rates counterbalance concerns over UK growth and political uncertainty. Governor Andrew Bailey has suggested market rate movements are effectively tightening policy, reducing the need for further hikes. However, international investors’ caution over UK economic prospects limits GBP upside.
Compared to the ECB, the BoE’s pragmatic stance is seen as less damaging to the currency. Structural issues persist, but the bank’s reluctance to exacerbate them with aggressive hikes is viewed as a positive for GBP.