A November Bank of England hike is almost fully priced, but economists are far less convinced about what follows. This week's UK wages and September CPI data could decide whether December tightening gets closer to certainty, while GBP/USD tests the 1.3341 resistance.
A 25bps Bank of England hike on November 5 is 93.2% priced, yet economists are far less convinced about the path beyond it. This week's UK data could show whether markets are getting ahead of the evidence.
Markets price more tightening than economists expect
The October 19 OIS snapshot assigns a 51.6% probability to another hike at the December 17 meeting, followed by 75.6% in February 2027. In contrast, only 30 of 61 respondents in a Reuters survey expected another increase in the first quarter of 2027.
A November rate hike that is already almost fully priced may provide limited fresh support for Sterling on its own.
Governor Andrew Bailey sounds more cautious. Speaking in Bangkok on October 16, he described evidence of second-round inflation effects as "quite subdued" so far, according to ActionForex's account. Meanwhile, the Monetary Policy Committee held Bank Rate at 3.75% in September by a 6–3 vote, with Huw Pill, Megan Greene and Catherine Mann favoring 4.00%.
Wages and September CPI become the tests
Tuesday's labor-market report will be important for assessing whether domestic wage pressures are becoming more persistent or continuing to ease. The latest figures showed unemployment at 4.9% and regular pay growth at 3.5%.
Wednesday's September CPI report is likely to carry even greater weight. Headline CPI stood at 3.1% in August, and forecasts point to approximately 3.4–3.5%, largely reflecting higher energy costs. If headline inflation rises mainly because of energy while underlying measures remain contained, Bailey's more cautious position would gain support.
GBP/USD faces 1.3341 resistance
GBP/USD rebounded from a 1.3135 short-term bottom on October 14. The immediate focus is 1.3341, the 38.2% retracement of the decline from 1.3675 to 1.3135.
A decisive break above that level would shift the next upside target to 1.3469. However, failure to overcome it would keep the recovery vulnerable to renewed selling, with initial support around 1.3274, followed by 1.3230.
Much of the recovery was driven by Dollar weakness, so Sterling may need more than confirmation of November's hike to sustain further gains.
Source: ActionForex
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