British Pound: Higher bar despite continued resilience – OCBC

OCBC expects British Pound (GBP) resilience to extend into early 2027. Strategists Sim Moh Siong and Christopher Wong cite fiscal discipline, higher UK growth forecasts and greater political stability as supporting factors. Revised EUR/GBP projections reflect sustained GBP strength against the Euro (EUR). However, markets already price in aggressive Bank of England (BoE) tightening, suggesting the easier gains are over. Further appreciation will depend on increasingly positive surprises in UK data.

Sterling resilience faces higher hurdles for further gains

"GBP has held up better than expected despite the fiscal strain from higher energy and borrowing costs. Crucially, the Budget did not add to those concerns. The government kept within its fiscal rules and retained a GBP15bn buffer against the stability rule, despite absorbing higher debt interest costs linked to the Middle East conflict."

"The broader UK backdrop also remains relatively supportive. Growth has proved resilient, with the OBR upgrading its 2026 growth forecast to 1.2%. Greater political stability and continued fiscal discipline should provide some relative support for GBP, while closer UK-EU economic ties could offer an additional medium-term tailwind."

"We revise our EUR/GBP forecast to reflect continued GBP resilience against EUR into early 2027, although the easier sterling gains may now be behind us. With markets already pricing an aggressive BoE tightening cycle, much of the rates support is already in the price. The bar for the next leg higher in GBP is therefore getting increasingly high."

"GBP resilience should extend into early 2027 as fiscal discipline, resilient growth and political stability remain supportive. But with substantial BoE tightening already priced, further gains will require increasingly positive UK surprises."

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