EUR/GBP: Direction of travel to lie towards the 0.88 area later this year – ING

Today’s MPC statement and accompanying material have seen Sterling sell off around 0.5%. Economists at ING analyze GBP outlook.

BoE reverts back to a 25 bps hike

Better news on inflation has, as expected, enabled the BoE to pivot back to a 25 bps rate hike this month. The BoE is keeping all its options open on future rate hikes, although another rise in September seems highly likely. Whether that's repeated in November is a more open question, particularly if services inflation starts to fall more noticeably between now and then.

We expect the general direction of travel for EUR/GBP to lie towards the 0.88 area later this year as evidence builds that rates may in fact peak at 5.50%. 

We still like a higher GBP/USD on the back of the softer Dollar story – but that does rely on both US inflation and activity showing a marked deceleration over the coming months. 

We currently see GBP/USD ending the year just above 1.30.