Sterling Rises Amid UK's Upcoming Inflation Data and BoE Decision

The British pound saw a slight increase on Friday, building on Thursday's gains against the dollar. Attention is now on the upcoming UK inflation data and the Bank of England's central bank meeting. Analysts expect the BoE to maintain the current interest rates, with future cuts anticipated from November onwards.

The British pound experienced a minor uptick on Friday, continuing Thursday's rebound from a three-week low against the dollar. Market focus has now shifted to next week's UK inflation data and the impending central bank meeting.

On Friday, Sterling ticked up to $1.3146, slightly higher than Thursday's close of $1.3127, which represented a 0.6% rise. The Bank of England is widely expected to hold interest rates steady next week, with futures markets suggesting an 80% likelihood of no change, following last month's 25 basis-point rate cut.

Goldman Sachs analysts anticipate the Monetary Policy Committee (MPC) to maintain the Bank Rate at 5.00% in the Sept. 19 meeting and continue the current £100bn stock reduction pace. The next crucial data point for the BoE will be the UK inflation rate, set to be released on Wednesday, just a day before the policy announcement. This week, data showed the UK economy was stagnant in July, bringing the pound to its lowest point since Aug. 20. A Reuters poll had forecasted a 0.2% month-on-month growth.

Despite these challenges, the British economy has outperformed the euro zone since the start of the year. The pound remained stable against the euro at 84.42 pence, while the European Central Bank cut interest rates by 25 basis points on Thursday. Media speculation also persisted about a significant Federal Reserve rate cut next week.

According to Goldman Sachs, the BoE's MPC might reconsider its cautious stance later this year, driven by moderating wage pressures and falling underlying services inflation. Analysts forecast sequential rate cuts starting from November, expecting the Bank Rate to reach 3% by September 2025.

(With inputs from agencies.)