With inflation set to drop sharply in October and then move gradually lower, our economists’ central case is for no further hikes and for the first rate cut to come in February 2025. We think the GBP will probably face further downward pressure if rates markets find more room to price in rate cuts in the months ahead.

It is worth noting that the BoE is now forecasting a worse growth-inflation trade-off, with the 2024 GDP growth forecast now having been trimmed to zero and the inflation forecasts for 2024 and 2025 having been revised upwards. With concerns over stagflation, we believe that the GBP will continue to struggle. 

Externally, slower global economic growth and heightened geopolitical risks could also point to a weaker GBP against the ‘safe-haven’ USD.