FX.co ★ Pound Falls as BoE Rate Hike Bets Shift to 2027

The British pound slipped below $1.36, pulling back from the six‑month highs reached last week, as the recent drop in Brent crude prices eased inflation worries and prompted markets to delay expectations for the next Bank of England rate increase to 2027 from late 2026.

According to LSEG data, markets are now pricing in about 24 basis points of tightening by December and 36 basis points by February 2027. For the BoE’s September meeting, less than 4 basis points are priced in, implying roughly a 15% probability of a rate hike.

Most economists expect the Bank Rate to remain at 3.75% through the end of the year, even though markets had previously anticipated a hike amid fears of a potential escalation in the US–Iran conflict. UK inflation rose to 2.9% in July, driven by higher household energy costs, and is projected to edge higher toward year‑end, while the labor market has stayed subdued.

Investors are now focused on Fed Chair Kevin Warsh’s speech at Jackson Hole on Friday for further guidance on the US interest rate outlook.