After a strong start to the year, the Pound Sterling (GBP) has retreated somewhat at the start of February. Economists at ING analyze GBP outlook.

BoE talks rate cuts

We have not heard too much from the Bank of England this year outside of MPC meetings, but Chief Economist Huw Pill suggested on Monday that a rate cut was possible this year and that inflation did not need to be at 2% before action could be taken. Those comments have helped drag EUR/GBP further away from big support levels at 0.8500/0.8525.

We do have a bullish profile for EUR/GBP this year – largely on the view that the BoE cuts more aggressively than the ECB. Let's get the Sterling positive event risk of the budget out of the way in early March and then the market should be able to focus on the sharp drop in UK headline inflation through the second quarter, as well as a softer Pound.