The Bank of England (BoE) is set to announce its interest rate decision on Thursday. Economists at Credit Suisse lay out different scenarios and how could the British pound react.

BoE could dither yet again and let GBP continue its freefall

“As much as we think the BoE should be hiking in 75 or even 100 bps increments, the evidence thus far is of a central bank asleep at the wheel. In this context our end-Q3 GBP/USD target is currently at 1.1250 (assuming a 75 bps hike this week), and we are not rushing to change it towards a stronger GBP until there is evidence of a more robust approach by Governor Bailey and the MPC doves.”

“If 50 bps is what transpires, we suspect EUR/GBP 0.9000 and GBP/USD levels below 1.1000 could come quickly.”

“In order for GBP to rally, we would need to see the BoE use the excuse of the government’s massive fiscal easing to radically change its thus-far tepid stance and move to hikes of 75-100 bps magnitude, with a validation of the market’s terminal rate pricing in its commentary. In this scenario, we imagine GBP/USD could try to test the 1.1700 level again and EUR/GBP could slip back to 0.8500.”