Barclays maintains a bullish outlook on GBP/USD, expecting the pound to reach 1.35 by the end of the year. The forecast is driven by resilient demand data, a gradual UK MPC rate-cutting cycle, and potential supply-side benefits from improved EU-UK relations. Despite potential short-term challenges, such as anti-growth measures in the upcoming Budget, Barclays sees sterling maintaining its positive momentum.

Key Points:

1. Demand Resilience: Recent data shows strong demand, supporting a slower and more measured rate-cutting cycle by the Bank of England (BoE). This helps sustain the pound's carry advantage.
2. Supply-Side Gains: The new UK government's efforts to strengthen ties with the EU are expected to benefit the pound. This closer relationship could provide positive supply-side impacts.
3. Budget Concerns: While the upcoming Budget may include anti-growth measures such as tax hikes and fiscal tightening, these are unlikely to be substantial enough to hinder sterling's overall momentum. The impact is expected to be temporary and relatively minor (around 0.5-1% of GDP).

Conclusion:

Barclays' bullish stance on GBP/USD is supported by strong economic data and anticipated positive developments in UK-EU relations. Although there may be short-term disruptions from the Budget, these are not expected to derail the pound's progress. The forecasted target of 1.35 by year-end reflects confidence in the pound's continued outperformance in the G10 currency space.