Credit Ágricole: The GBP
Sterling’s resilience against the USD and outperformance versus the EUR in 2026 have exceeded expectations, supported by stronger-than-anticipated UK growth, hawkish BoE rate expectations and France’s fiscal difficulties. However, these tailwinds may prove temporary. Higher energy costs, potential tax increases and spending restraint in the Autumn Statement could weaken household purchasing power and weigh on growth, while continued AI investment may provide some support. Markets are pricing four BoE rate hikes in the coming months, but we doubt the MPC will deliver this degree of tightening and warn that gilt yields could become a negative signal for GBP if tighter financial conditions prompt a more dovish policy outlook. Sterling has also benefited from the UK’s relative fiscal appeal and its mining-heavy equity market, which has attracted investors diversifying away from US and Eurozone stocks. These advantages could persist in the near term, but renewed UK growth underperformance could revive concerns over public finances and weaken demand for UK assets. The outlook will depend heavily on the Autumn Statement and the following BoE meeting. Chancellor John Healey is expected to
Sterling’s resilience against the USD and outperformance versus the EUR in 2026 have exceeded expectations, supported by stronger-than-anticipated UK growth, hawkish BoE rate expectations and France’s fiscal difficulties. However, these tailwinds may prove temporary. Higher energy costs, potential tax increases and spending restraint in the Autumn Statement could weaken household purchasing power and weigh on growth, while continued AI investment may provide some support.
Markets are pricing four BoE rate hikes in the coming months, but we doubt the MPC will deliver this degree of tightening and warn that gilt yields could become a negative signal for GBP if tighter financial conditions prompt a more dovish policy outlook. Sterling has also benefited from the UK’s relative fiscal appeal and its mining-heavy equity market, which has attracted investors diversifying away from US and Eurozone stocks. These advantages could persist in the near term, but renewed UK growth underperformance could revive concerns over public finances and weaken demand for UK assets.
The outlook will depend heavily on the Autumn Statement and the following BoE meeting. Chancellor John Healey is expected to prioritise immediate fiscal pressures and headroom through a mix of tax rises and additional borrowing, potentially delaying longer-term fiscal reforms until the March 2027 Budget. Meanwhile, we expect a November rate hike but a cautious BoE that avoids committing to further increases. We remain open to adjusting our near-term sterling forecasts in response to recent market moves, but see limited justification for a significant upgrade to the longer-term outlook.
We already forecast GBP/USD moving towards 1.39 and EUR/GBP towards 0.84 over the next six to twelve months. Further sterling gains will depend on whether economic resilience and relative policy attractiveness persist without being undermined by weaker growth or renewed fiscal concerns.