Bank of England set to limit GBP’s upside potential – Danske Bank

Analysts at Danske Bank suggest that the Bank of England (BoE) has drawn a line in the sand in terms of the inflation outlook and in November hiked the Bank rate by 25bp, as it thinks the horizon in which CPI inflation is expected to return to 2% is ‘stretched out’.

Key Quotes

“The BoE’s ‘new’ tolerance for inflation running above target should curb upside risks in EUR/GBP in 6-12M, as additional GBP depression would be likely to trigger another rate hike. We expect the BoE to keep interest rates unchanged for the next 12M in a scenario with moderate GBP appreciation. The market is currently pricing in the next 25bp hike in September 2018, which is too early in our view – unless the GBP weakens considerably.”