British Pound: BoE tightening expectations face scrutiny – BBH

A 25 bps BOE hike to 4.00% in November has support from UK PMI beats, notes Elias Haddad at Brown Brothers Harriman. Yet broad Dollar strength is weighing on GBP/USD. Haddad considers future tightening overpriced in the swaps market. He sees below-capacity growth, weak real wages, a near-neutral policy rate and likely fiscal restraint as headwinds for the Pound.

53.1 PMI Fails to Lift Pound

"GBP/USD is down on broad USD strength while EUR/GBP dropped to its lowest level since May 2025. UK October PMI beat expectations, cementing bets on a 25bps BOE policy rate hike to 4.00% on November 5."

"The composite PMI improved to an eight-month high at 53.1 (consensus: 51.7) vs. 52.0 in September, driven by faster services and manufacturing growth."

"Over the next twelve months, the swaps curve still implies over 100bps of BOE tightening."

"We see scope for less which is a headwind for GBP: (i) The UK economy is operating below capacity, (ii) virtually no real wage growth constrains spending, (iii) the policy rate is near the top of the BOE’s estimated 2% to 4% neutral range, and (iv) fiscal policy will likely turn more restrictive following the October 28 UK budget."

(An editor reviewed this article, which was produced with assistance from an Artificial Intelligence tool. Learn more.)