Next week, the Bank of England will have its monetary policy meeting. Analysts at MUFG Bank consider it poses some upside risk for the pound but they warn any rally should be short-lived in light of the still unfavourable UK cyclical backdrop. 

Key Quotes:

“The GBP has been consolidating at weaker levels after correcting lower in April and May. It has seen cable fluctuate around the 1.2500-level since late April while EUR/GBP has been trading just above the 0.8500-level over the same period. The recent pick-up in UK political uncertainty after Prime Boris Johnson faced and narrowly survived a vote of no confidence in parliament at the start of this week had only a limited and fleeting impact on GBP performance.”

“The weak outlook for UK growth combined with elevated inflation continues to be a negative mix for GBP performance, and is making it more difficult for the BoE to set monetary policy. We expect the BoE to continue tightening policy in the week ahead in response to the risk that elevated inflation could become more embedded without policy action.”

“We believe next week’s MPC meeting poses some upside risk for the GBP, but any rally should be short-lived in light of the still unfavourable UK cyclical backdrop.”