Prospects for Sterling remain subdued – Commerzbank

Sterling eased as a result of the BoE decision. Economists at Commerzbank report.

GBP might be able to recover slightly if the inflation outlook were to improve significantly 

The BoE did leave the door open for another rate hike, and the vote in favour of a pause was remarkably tight at 5:4. The other four members voted for a 25 bps rate hike. This illustrates once again the high uncertainty in connection with the inflation and economic outlook.

The question that arises now is how the BoE will react if price pressure does not fall as rapidly over the coming months as currently expected. The market is likely to see the BoE’s determination sceptically which is likely to put pressure on Sterling.

If the inflation outlook were to improve significantly Sterling might be able to recover slightly. At that point, the expectations that the BoE will cut its key rate due to the weak economy will then probably increase though. One way or the other prospects for Sterling remain subdued.