BNY Sees BoE Holding at 3.75% as UK Fiscal Risks Cap Pound Upside
Updated
Updated · tmgm.com · Jul 27
BNY Sees BoE Holding at 3.75% as UK Fiscal Risks Cap Pound Upside
3 articles · Updated · tmgm.com · Jul 27
Summary
BNY’s Geoff Yu said the Bank of England is likely to leave rates unchanged this week, even with energy-driven price pressures lifting headline inflation risks.
Around 42 basis points of tightening priced by year-end looks excessive to Yu, who argues markets have already tightened conditions through higher swap rates and rebounding mortgage costs.
UK fiscal policy could matter more for sterling and rate expectations, with limited fiscal space and a possible early-Q4 package to raise tax thresholds shaping demand and gilt supply.
The BoE is expected to hold at 3.75% with at most two dissents, while softer underlying inflation and slowing wage growth still support a cautious stance.
That mix leaves the pound resilient against the dollar, but with limited upside unless stronger growth surprises offset fiscal concerns.