British Pound: Resilience sustained but bar higher – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong see British Pound (GBP) resilience extending into early 2027, supported by fiscal discipline, upgraded UK growth forecasts and greater political stability. EUR/GBP projections are revised to reflect continued GBP strength versus Euro (EUR), but with aggressive Bank of England (BoE) tightening already priced, the easier gains appear behind, leaving further upside dependent on increasingly positive UK data surprises.

Sterling support with tougher upside

"GBP has held up better than expected despite the fiscal strain from higher energy and borrowing costs. Crucially, the Budget did not add to those concerns. The government kept within its fiscal rules and retained a GBP15bn buffer against the stability rule, despite absorbing higher debt interest costs linked to the Middle East conflict."

"The broader UK backdrop also remains relatively supportive. Growth has proved resilient, with the OBR upgrading its 2026 growth forecast to 1.2%. Greater political stability and continued fiscal discipline should provide some relative support for GBP, while closer UK-EU economic ties could offer an additional medium-term tailwind."

"We revise our EUR/GBP forecast to reflect continued GBP resilience against EUR into early 2027, although the easier sterling gains may now be behind us. With markets already pricing an aggressive BoE tightening cycle, much of the rates support is already in the price. The bar for the next leg higher in GBP is therefore getting increasingly high."

"GBP resilience should extend into early 2027 as fiscal discipline, resilient growth and political stability remain supportive. But with substantial BoE tightening already priced, further gains will require increasingly positive UK surprises."