EUR/GBP: Relative rates seen as a moderate positive – Danske Bank

The Bank of England (BoE) decided to keep the Bank Rate (key policy rate) unchanged at 5.25%. EUR/GBP initially moved higher but partly retraced the move later on. Economists at Danske Bank analyze the pair’s outlook.

The peak in the Bank Rate has been reached

The BoE decided to keep the policy rate unchanged at 5.25% with forward guidance remaining broadly unchanged. 

We think that this marks the peak in the Bank Rate of 5.25%, although wage growth and service inflation remain a joker.

We continue to see relative rates as a moderate positive for EUR/GBP, although GBP has largely decoupled from moves in relative rates the past month. 

We expect the relative performance of the Euro area and the UK economy to be a driver, targeting a moderate rise in EUR/GBP to 0.88 the next year.