British Pound: Neutral budget, higher BoE rates ahead – ABN AMRO
ABN AMRO economists Bill Diviney and Adrian Quinn expect the United Kingdom (UK) to maintain its fiscal consolidation progress, supported by resilient economic growth.
ABN AMRO economists predict the UK economy will maintain fiscal consolidation progress despite resilient growth. They forecast GDP growth of 1.4% in 2026 and 2027, and anticipate two Bank of England (BoE) rate hikes, reaching 4.25% by February 2027. The UK has shown significant fiscal consolidation since 2022, with the primary deficit dropping from 4.0% of GDP to 1.2% in 2026.
Resilient economic growth, driven by services, investment, and private consumption, has contributed to this consolidation. Despite global economic challenges, the UK economy has been remarkably resilient. The cautious fiscal policy in the budget is expected to have limited macro implications, with targeted support for households and selective revenue measures.
The BoE is expected to continue raising interest rates to combat elevated inflation, which is projected to peak above 4% by early 2027.
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