ING’s Chris Turner expects the Bank of England to leave policy unchanged in a 7–2 vote while sounding hawkish, but ultimately sees UK inflation peaking near 3.5% later this year without triggering tightening. The bank anticipates further GBP/USD downside toward 1.3200 and sees EUR/GBP biased higher as markets reward currencies backed by more proactive central banks.

BoE to ride out inflation spike

"Our call is for a 7-2 vote for unchanged policy (slight risk of 6-3), but presumably the need to sound hawkish to ride out this inflation shock. Our bottom line, however, is that inflation is going to peak around the 3.5% area later this year and the BoE will avoid tightening."

"Expect more pressure on GBP/USD as the dollar enjoys a run against those currencies whose central banks are trying to avoid tightening this year – such as in Canada and Sweden. GBP/USD could drift to the 1.3200 area over the coming weeks."

"Neither of which looks good for sterling. EUR/GBP looks biased to 0.8680/8700."

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