The Bank of England is expected to maintain its current policy stance through 2026, according to Jane Foley, Senior FX Strategist at Rabobank. This baseline forecast follows recent softening in UK inflation data, declining oil prices, and continued weakness in the labour market. The combination of these factors suggests the BoE will have limited room to maneuver on monetary policy over the next two years.
The assessment comes as traders and market participants position for an extended period of policy stability from the UK central bank. A softer CPI reading reduces pressure on the BoE to maintain aggressive monetary tightening, while labour market slack indicates economic cooling. Lower oil prices provide additional disinflationary pressure, supporting the case for unchanged rates through the medium term.
Sterling positioning and UK gilt yields are likely to reflect this prolonged pause, with carry trade strategies needing reassessment given the static rate environment ahead.
FXnCO Insight
Sterling traders should prepare for reduced volatility around BoE meetings and consider repositioning carry strategies as the extended policy hold diminishes yield advantage opportunities against major currencies.
Source: FXStreet