British Pound Forecast: Higher UK Rates May Not Be Enough To Rescue GBP

Goldman Sachs and Citi expect a November BoE hike, but Crédit Agricole sees US Dollar strength and UK economic risks weighing on Pound Sterling first.

The British Pound to US Dollar exchange rate (GBP/USD) could fall to 1.31 by December, Crédit Agricole forecasts, with a recovery to 1.39 taking until the end of 2027.

Pound Sterling finished Friday near 1.3395, up 0.29% on the day but almost 1% lower over the week, leaving the bank’s year-end target roughly 2.2% below the latest close.

“We maintain a cautious GBP/USD outlook from current levels that is consistent with our bullish USD outlook.”

Crédit Agricole expects US economic outperformance and investment flows to sustain Dollar demand over the next three to six months.

It also warns that persistent inflation alongside weak growth could hurt confidence in Britain’s economic and fiscal prospects.

A November hike would not settle Sterling’s outlook

The Bank of England’s 6-3 vote to hold rates at 3.75% left the timing of tightening uncertain, despite a stronger warning about inflation.

Goldman Sachs expects a quarter-point increase to 4% in November, followed by a hold.

“Our interpretation of the communications is that the MPC will probably hike in November if energy price pressures persist.”

Lower energy prices or weaker data could still prevent that increase.

Citi also favours November, while allowing for a delay until December, and makes the Gulf conflict central to its call:

“Everything rests on what happens in the Strait. If there is a resolution, then this hawkish narrative will unravel and the Committee will hold.”

Crédit Agricole’s published rate path differs, keeping Bank Rate at 3.75% through June 2027 before cuts later that year.

It argues that the BoE’s changes to its bond-selling programme diluted the message on rates, helping explain Sterling’s fall after the decision.

Pound Sterling Longer-Term Forecast: The recovery builds through 2027

Crédit Agricole forecasts 1.32 in March, 1.34 in June and 1.37 in September, before reaching 1.39 in December 2027.

Its caution also has limits:

“We further note that the GBP is already looking oversold while global investors seem underinvested in UK assets.”

We read that path as a gradual recovery as Dollar support fades, rather than a rally driven by repeated BoE hikes.

Crédit Agricole sees US growth cooling in 2027, when concerns about American policy uncertainty and public finances could regain influence over the Dollar.

Our currency coverage draws on live market data, official economic releases and published bank research.