GBP: BoE Stands Firm on Bank Rate and Mortgage Interest Relief, EUR/GBP Drifts Lower

GBP: No push back against 6%+ Bank Rate this week

There is much discussion in the financial press about central bankers having seen the 'easy', base effect-driven decline in headline inflation. But now they are into the hard yards of getting core inflation down from around 5% – or in the Bank of England's case 7%. In this environment, we should expect no pushback from BoE officials on the pricing of the Bank Rate above 6% early next year. Equally, we expect the government to yield no ground on mortgage interest relief, which would only make the BoE's job harder.

EUR/GBP fell on the back of the Eurozone PMI dip last Friday. Despite UK hard landing fears, we are sticking with the initial views we put out in our latest BoE reaction piece. Namely, that a very inverted yield curve probably trumps hard landing fears and that sterling holds onto recent gains for the time being. 

On this week's UK calendar is primarily BoE speakers, where Wednesday looks to be the main Sintra event for BoE Governor Andrew Bailey. EUR/GBP can drift back to 0.8520 this week, while GBP/USD should find demand under 1.27.