Money markets now fully price a Bank of England rate increase by November amid rising energy-driven inflation risks.
The Euro slid against the British Pound, with EUR/GBP trading near 0.8509, its lowest level since June 2025. Reduced political uncertainty in the UK and expectations of higher Bank of England interest rates supported the Pound’s strength.
Markets anticipate the BoE will raise rates from the current 3.75% by November, with a second hike expected by March 2027. The European Central Bank, however, is seen as unlikely to tighten further soon after its June 25 basis point increase to 2.25%. Bundesbank President Joachim Nagel indicated rates are at an appropriate level, while ECB policymaker Fabio Panetta noted inflation remains above 3%.
Renewed geopolitical tensions in the Middle East have driven oil prices higher, raising concerns about persistent inflation and reinforcing bets on BoE tightening.