GBP: Higher inflation keeps BoE on tightening path – BNP Paribas

BNP Paribas economists expect United Kingdom (UK) growth to slow to 0.7% in 2026 from 1.4% in 2025, with quarterly expansion dropping to about 0.1%. Inflation is projected to rise to 3.6% year-on-year before easing only gradually, prompting a 50 bps monetary tightening in 2026, while 10-year gilt yields stay elevated before falling to 4.30% in 2027.

UK outlook constrained by inflation

"Economic activity is expected to slow down in 2026, with growth limited to 0.7% after 1.4% in 2025; following a forecasted +0.4% q/q in Q1, the average quarterly pace would fall to around +0.1%."

"This slowdown would occur against a backdrop of renewed inflationary pressures triggered by the war in Iran: inflation would reach 3.6% y/y before easing only gradually to 3.3% y/y in 2027, remaining well above BoE's target."

"In this context, and contrary to the initially envisaged easing scenario, monetary policy would shift toward a tightening of 50 basis points in 2026."

"10y gilt yields will remain elevated in 2026, before falling to 4.30% in 2027 on reduced net supply, a decline in political risk premia and a market starting to eye BoE rate cuts."

"We anticipate stabilisation of the yen and the GBP against the dollar in 2026 (USD/JPY 160 and GBP/USD 1.35 by Q4 2026) and 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

United States Factory Orders (MoM) above expectations (0.5%) in March: Actual (1.5%)

United States Factory Orders (MoM) above expectations (0.5%) in March: Actual (1.5%)
Read more Previous

USD/CAD edges higher as US-Iran tensions underpin the US Dollar

USD/CAD edges higher on Monday as rising tensions in the Strait of Hormuz, amid the ongoing US–Iran standoff, support the US Dollar (USD). At the time of writing, the pair is trading around 1.3617, up nearly 0.22% on the day.
Read more Next