Brown Brothers Harriman expects the Bank of England to hold at 3.75% with a 7–2 vote and sees the first fully priced 25 bps hike in November. They argue BoE tightening in a weak growth, high inflation environment is not bullish for the Pound and forecast GBP/USD falling to 1.3100, with UK political risks potentially amplifying downside.

UK policy and politics pressure Pound

"The BoE is widely expected to keep the policy rate at 3.75% for a fourth straight meeting (Thursday). A 7-2 vote split is anticipated, compared with an 8-1 split at the last April 30 meeting. Megan Greene is seen joining Huw Pill in supporting a 25bps hike."

"BoE rate hikes in a sluggish growth, high inflation environment, is not bullish for GBP but should help cushion the downside. We expect GBP/USD to fall to 1.3100, reflecting a stronger US growth outlook relative to the UK."

"The UK political backdrop can amplify a GBP decline, with Thursday’s Makerfield by-election a key event risk. Polls show Andy Burnham leading Reform UK by anywhere from 3 to 12 points, potentially clearing a path for his return to parliament and a leadership challenge to Prime Minister Keir Starmer. A Burnham-led Labour government will likely lead to more spending and borrowing, worsening UK fiscal credibility."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)