Rabobank Expects Pound to Weaken Slightly Against Euro Amid UK Political Uncertainty

Rabobank said the pound could soften against the euro if the Bank of England keeps interest rates unchanged and political uncertainty in the UK remains elevated. According to Jin10, Rabobank analyst Jane Foley wrote in a note that the Bank of England is unlikely to raise rates this year, which could contribute to a modest decline in the pound’s exchange rate versus the euro. Foley said the Bank of England would only vote to increase rates if there were clear evidence that persistently high energy prices had triggered “second-round effects” on inflation. She also cited ongoing political uncertainty, noting that potential next prime minister candidate Andy Burnham said he would adhere to fiscal rules but had provided relatively vague plans on how funding would be raised. Foley said political uncertainty could weigh on business confidence, investment, and economic growth. The euro was flat against the pound at 0.8610. Rabobank expected the euro-pound exchange rate to reach 0.87 over the next one to three months.