British Pound: BoE pause risks dovish repricing – ING

ING’s Francesco Pesole expects the Bank of England (BoE) to leave rates unchanged this week, with a 7–2 vote remaining the base case, although Catherine Mann could join Huw Pill and Megan Greene in supporting a rate hike. Pesole argues that contained inflation projections would strengthen the case for rates to remain on hold for the rest of the year, potentially forcing markets to unwind some of the 38bp of tightening priced by year-end and creating downside risks for Sterling.

BoE hold and pricing risk for sterling

"In our view, the rebound in EUR/GBP – now 1% above the 15 July low of 0.8455 – still has further to run."

"Thursday's Bank of England meeting is the main event. Rates should remain on hold, but the focus will be on whether support for tighter policy broadens within the MPC."

"Catherine Mann may join Huw Pill and Megan Greene in voting for a hike, although we still expect a 7-2 vote in favour of unchanged rates. Higher energy prices remain an upside risk to inflation, but we expect the updated projections to show CPI peaking comfortably below 4%."

"If inflation is still expected to remain contained, we believe the BoE will leave rates unchanged for the rest of the year."

"With markets pricing 38bp of tightening by year-end, dovish repricing remains, in our view, the clearest near-term risk for sterling."