Pantheon Macroeconomics sees growing risk of no BoE rate hikes in 2026, driven by falling energy prices. GBP/EUR and GBP/USD face downside if the market reprices UK rate expectations.
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The British pound has held relatively steady, with GBP/EUR trading around 1.154 and GBP/USD near 1.35. Pantheon Macroeconomics has revised its Bank of England rate forecast and now sees growing risks that the central bank will deliver no rate hikes at all in 2026. The consultancy's shift is driven by falling energy prices, which it argues have significantly reduced the inflationary pressure that would otherwise force the BoE to tighten again next year.
The revision matters for sterling because UK rate expectations have been a key pillar supporting the pound in recent quarters. If the market begins to price out 2026 hikes, that support erodes. The transmission runs through the sterling rate differential versus the euro and the dollar.
Pantheon's argument rests on a simple mechanism. Lower energy prices flow through to headline CPI directly and also ease cost pressures for businesses, reducing second-round effects. With inflation already trending lower, the BoE would have no reason to resume tightening next year unless something else reignites price growth.
That view runs counter to some expectations earlier in 2025 that the BoE would need to hike again in 2026 to keep inflation anchored. Pantheon now sees the opposite risk – that rates stay on hold or even get cut further. For forex traders, the key transmission runs through the sterling rate differential versus the euro and the dollar.
If the market adopts Pantheon's view, GBP/EUR should lose a significant driver of its recent strength. The European Central Bank, by contrast, faces stickier inflation and a less pronounced energy tailwind, which keeps the door open for later rate moves. A narrowing of the UK-EU rate differential in favor of the euro would push GBP/EUR lower from current levels.
For GBP/USD, the story is partly about relative rate paths and partly about dollar dynamics. A no-hike-2026 scenario for the BoE weakens sterling against the dollar, all else equal. If the Federal Reserve also pivots to cuts, the cross could remain range-bound. The net effect depends on how quickly the market reprices UK expectations versus US expectations.
The most immediate tests for Pantheon's thesis will be the upcoming UK CPI prints and the BoE quarterly inflation report. Softer-than-expected services inflation would confirm that energy disinflation is feeding through to core prices. A miss on wages data would reduce the case for any residual tightening.
Traders should also watch GBP/EUR and GBP/USD positioning. A shift in speculative net longs – currently elevated for sterling – would signal that the market is beginning to align with Pantheon's no-hike view. The next BoE meeting minutes and MPC vote split will provide the clearest read on internal committee leans.
For a broader picture of how rate differentials affect currency pairs, see AlphaScala's forex market analysis and the GBP/USD profile.
Pantheon's revision does not guarantee a weaker pound. It introduces a material downside risk that was not present when energy prices were climbing. The burden of proof now shifts to the data to either validate or refute the consultancy's lowered rate path.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.