The Pound is bracing for a potentially choppy day ahead. Economists at Société Générale analyze GBP outlook.

The BoE is mulling whether to raise bank rate by 25 bps or by 50 bps

The BoE is mulling whether to raise bank rate by 25 bps or by 50 bps for a second successive meeting. The choice could depend on whether the bank believes wage growth (AWE ex-bonuses 7.3%) keeps inflation higher for longer. For bank rate, we forecast 25 bps followed by another 25 bps in September to a peak of 5.50%.

Previous MPC decisions this year have almost uniformly resulted in a decline in GBP/USD and a rally in EUR/GBP, the one exception being March when Cable rose 0.4%. 

Equally as important will be the new inflation forecasts. The implied peak rate has shot up since May to 5.75% and implicitly this should be helpful to inflation returning to target faster towards the end of the forecast period.