GBP/USD rose 0.25% to 1.3235 after the BoE held rates at 4.5%. Goldman expects no rate change through 2026, citing sticky services inflation. The next data point is February CPI on March 26.
The pound rose 0.25% to 1.3235 on Friday, recovering from a three-month low of 1.3164 touched earlier in the week. The GBP/USD bounce followed the Bank of England's decision to hold its key rate at 4.5%, a result that Goldman Sachs said locks the central bank into a prolonged pause through the end of 2026.
The BoE held rates on Thursday with a 7-2 vote split. Two members favoured a quarter-point cut. Governor Andrew Bailey said the committee was watching wage growth and services prices closely. Headline CPI in January stood at 2.6%, down from 2.8% a month earlier. The reading remained above the 2% target. Services inflation stayed sticky at 5.0%.
Goldman said the bar for a cut remains high. The bank expects the bank rate to stay at 4.5% through 2026 because inflation is easing too slowly to justify a move before 2027. Headline CPI should hover near 2.5% through year-end, Goldman said, keeping real rates roughly neutral. That removes urgency for a cut or a hike.
Goldman's house view sees the pound trading in a 1.30–1.35 range against the dollar over the next 12 months. That assumes the BoE stays on hold and the Federal Reserve cuts twice in the second half of 2026. If the Fed eases faster, the dollar could weaken and push sterling toward the top of the range. A prolonged hold by the BoE relative to a cutting ECB also supports sterling against the euro. Goldman said the pound's carry advantage over the euro is the main macro argument for a bullish EUR/GBP bias, and that assumes no negative growth shock in the UK.
A risk to Goldman's base case is a sharper economic slowdown. UK GDP grew 0.1% in the fourth quarter, below the BoE's 0.2% estimate. The unemployment rate held at 4.4% while average weekly earnings rose 5.9%, keeping pressure on services prices. If GDP contracts for two consecutive quarters, Goldman said the committee would likely look through inflation stickiness and ease.
The next data point is the February CPI print due March 26. The BoE's next meeting is May 8. The spring budget due March 13 could also deliver fiscal signals that shift the policy outlook.
The pound's Friday gain came as the dollar gave back some of its weekly advance. The dollar index slipped 0.2% after hitting a two-week high.
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