British Pound: Resilient growth supports more BoE hikes - Commerzbank

Volkmar Baur at Commerzbank notes the UK economy's resilient growth, citing upward revisions to GDP and solid monthly data. With inflation remaining stubborn and core inflation at 2.6%, he anticipates the Bank of England to raise rates in November and again in February to 4.25%. Consequently, EUR/GBP is expected to trade relatively flat in the coming months before the British pound weakens later in 2027.

The UK economy has proven relatively robust so far this year, with the first-quarter growth rate of 0.6% quarter-over-quarter, revised upward to 0.5% in the final release. July's monthly GDP data, showing a 0.4% month-over-month increase, further supports a strong start to the third quarter. This improved growth outlook should facilitate additional Bank of England rate hikes to combat inflation.

Earlier, the BoE was not expected to hike rates again; however, recent developments have led to the conclusion that a November hike is probable. Furthermore, another hike is anticipated in February, raising Bank Rate to 4.25%. The market also factors in two more rate hikes by February, implying four hikes in total. Only from the second quarter of next year is sterling expected to face renewed pressure against the euro.

Currently, the market anticipates two additional rate hikes, with the possibility of four hikes in total. Post the February meeting, these additional tightening expectations are expected to gradually be priced out, placing sterling under renewed pressure.