Synopsis:

BofA expects the BoE to maintain rates unchanged with an 8-1 vote, reflecting a cautious stance amid persistent inflation and recent soft economic data. While GBP may face near-term risks, medium-term strength remains likely due to positive carry and a “higher for longer” rate outlook.

Key Points:

• Policy Outlook:

  • BoE likely to hold rates steady with an 8-1 vote (risks of 9-0).
  • November’s revised growth and inflation forecasts reduce the need for immediate action.
  • Recent data support a “higher for longer” narrative despite some softness in activity surveys.

• GBP Implications:

  • Recent GBP gains against USD reflect resilience amid G10 currencies.
  • Potential near-term risks due to stretched positioning and possible soft tone from the BoE.
  • Medium-term GBP strength expected, supported by positive carry, less restrictive fiscal policy, and durable UK rates.

Conclusion:

BofA expects a cautious BoE stance with no rate change in December. While GBP may face short-term pressure due to positioning and potential dovish signals, the currency’s medium-term outlook remains strong, supported by favorable rate differentials and fiscal stability. Any GBP weakness around the BoE meeting could be a buying opportunity.