MUFG Research discusses GBP outlook in light of the BoE rate expectations.
"We see some risks that the recent move higher in rate hike expectations could reverse. The real GDP m/m gain of just 0.1% in July means the 2.9% Q/Q BoE estimate for GDP in Q3 will be difficult to achieve. While the negative impact from the “pingdemic” may recede in August and beyond, the impact from supply-constraints is likely to increase. In addition, you now have consumers who may have a greater tendency to save more of their incomes to prepare for future tax increases, starting with the 1.25% NIC increase which will kick in from April 2022," MUFG notes.
"GBP is deriving support from the move higher in rate expectations for next year which should provide continued support. However, risks are emerging which if sustained could see some reversal of GBP appreciation," MUFG adds.