In the wake of core prices gaining a full percentage point since the start of the year, the market has materially boosted BoE terminal rate assumptions towards 5.50%, stoking renewed recession concerns. However, we expect the terminal rate to top out at 5.00%, as rates in excess of such levels would amplify recession risks. 

Early signs of a rollover in food prices, while labour markets and wages appear set to moderate, point towards a graduated reduction in UK terminal rate assumptions in the next few months. 

But looking beyond, we don’t expect a recession in the UK. As such, an easing in recession fears combined with a softer USD should support the broad GBP recovery narrative.

GBP/USD – Q3 2023: 1.24 | Q4 2023: 1.27