Societe Generale forecasts that the British Pound (GBP) will outperform its G10 peers, excluding the US Dollar (USD), driven by accelerating UK GDP growth and rising CPI and PPI inflation. These factors are strengthening the case for a more hawkish stance from the Bank of England (BoE), with a minority of Monetary Policy Committee (MPC) members, including Pill, Greene, and Mann, advocating for an immediate increase in the bank rate, led by chief economist Pill [1].
The bank notes that those supporting a rate hike could become the majority by November, with 94% of market participants pricing in this scenario. This shift is based on the reasoning that policy must be more restrictive to bring inflation down to target. Societe Generale expects the BoE's statement to turn more hawkish, potentially signaling a greater likelihood of tightening around Guy Fawkes Night, when growth and inflation forecasts may be revised upward due to higher energy prices and changes in the implied rate curve since August [1].
Additionally, the bank highlights that a slower pace of quantitative tightening (QT), or a pause in Gilt sales, could support the Pound by flattening long-end yields and easing the burden on fiscal and monetary policy. Their house view is for active Gilt sales to remain at £20bn between October 2026 and September 2027, implying a £50bn reduction in the Asset Purchase Facility (APF) compared to £70bn previously [1].
For EUR/GBP, Societe Generale identifies key support at 0.8530 and resistance at 0.8610. The bank's economists are aligned with consensus for the BoE to maintain the bank rate at 3.75% [1].
CONCLUSION
Societe Generale anticipates the British Pound will benefit from accelerating UK growth and inflation, with a more hawkish Bank of England stance likely. The outlook is supported by expectations of a slower pace of quantitative tightening and stable bank rates. Market participants should watch for potential tightening signals and revised forecasts in the coming months.