Brown Brothers Harriman (BBH) anticipates that both the Riksbank and the Bank of England (BoE) will maintain their current policy rates at their upcoming meetings, reflecting a cautious stance in the face of differing domestic economic conditions. The Riksbank is expected to keep its policy rate at 1.75% for a sixth consecutive meeting, with BBH forecasting that the central bank will resist market expectations for a 25 basis point hike by year-end. The updated Riksbank forecast is likely to signal no change in rates through Q4 2026, though the first full 25bps hike may be brought forward to late 2027 from Q1 2028. Sweden's benign inflation and ample spare capacity support this extended hold, which BBH views as a headwind for the Swedish Krona (SEK) [1].
Similarly, BBH expects the BoE to hold its policy rate at 3.75% for a fourth consecutive meeting, with a 7–2 vote split anticipated, compared to an 8–1 split at the previous meeting on April 30. Megan Greene is expected to join Huw Pill in supporting a 25bps hike. BBH notes that BoE tightening in a weak growth, high inflation environment is not bullish for the British Pound (GBP), though it may help cushion the downside. The firm forecasts GBP/USD to fall to 1.3100, citing a stronger US growth outlook relative to the UK [2].
Political risks in the UK are also highlighted as a potential amplifier of GBP downside. The upcoming Makerfield by-election is identified as a key event risk, with polls showing Andy Burnham leading Reform UK by 3 to 12 points. A victory for Burnham could pave the way for his return to parliament and a possible leadership challenge to Prime Minister Keir Starmer. BBH suggests that a Burnham-led Labour government would likely result in increased spending and borrowing, further undermining UK fiscal credibility [2].
Overall, both central banks' cautious approaches, combined with domestic economic and political factors, are seen as weighing on their respective currencies.
CONCLUSION
Both the Riksbank and the BoE are expected to maintain their current policy rates, signaling caution amid subdued inflation in Sweden and weak growth with high inflation in the UK. BBH sees these stances as negative for the SEK and GBP, with additional UK political risks potentially exacerbating GBP weakness. Market participants should remain alert to central bank guidance and political developments for further direction.