ING expects the Bank of England to keep its policy rate unchanged at this week’s meeting, with a 7–2 split still the central scenario, though Catherine Mann could join Huw Pill and Megan Greene in backing a rise. The focus is on whether support for tighter policy expands within the MPC, as that could shape expectations for policy through year-end. Higher energy prices are flagged as an upside risk to inflation, but updated projections are expected to show CPI peaking comfortably below 4%.
ING also points to a recent move in EUR/GBP, which is now 1% above the 15 July low of 0.8455, and suggests the rebound could extend. The note says that if inflation forecasts remain contained, the BoE may keep rates on hold for the rest of the year. In that case, markets may have to unwind part of the 38bp of tightening currently priced by year-end, a shift that would skew risks against Sterling.
BoE Rate Outlook and Sterling Risks
We expect the Bank of England to maintain its key interest rate at this week’s meeting, resisting pressure from hawkish policymakers who favor further tightening. While some committee members might vote for a hike, we anticipate a solid majority will favor holding rates steady as inflation remains under control. This looming decision creates a crucial opening for derivative traders to prepare for a downward correction in the British Pound.
Financial markets are currently pricing in roughly 38 basis points of additional tightening by the end of the year, which we view as highly unrealistic. Historically, similar gaps between market expectations and central bank reality have triggered rapid dovish repricing, dragging Sterling down. Derivative traders should consider shorting GBP futures or buying put options to capitalize on this impending adjustment.
EUR/GBP Performance and Trading Strategies
The EUR/GBP currency pair has already rebounded over 1% from its recent low of 0.8455, and we believe this upward trend has much further to run. With eurozone inflation holding steady near 2.5% in recent months, the Euro is well-positioned to gain ground against a weaker Pound. Implementing EUR/GBP call spreads would be an effective strategy to capture this upside while managing risk.
Looking back at past policy shifts, such as the market reaction to the BoE’s rate pause in late 2023, the Pound fell sharply by over 1.5% against major peers within days of the announcement. Traders must act quickly in the coming weeks to adjust their portfolios before the official rate decision on Thursday. Setting tight stop-losses on any remaining long GBP exposures is highly recommended to protect capital from sudden volatility.
