The Bank of England, as expected, kept the interest rate at 5% during the meeting that concluded last week, with votes split 8 to 1 instead of the anticipated 7 to 2, indicating a more hawkish stance than expected.

The BoE maintained a significant portion of its previous recommendations, stating that policy will remain restrictive until inflation returns to target. When that will happen is quite unclear, as the latest report showed an increase in the core index in August from 3.3% year-on-year to 3.6%, exceeding forecasts.

The NIESR Institute, in its baseline scenario, forecasts that overall inflation will rise from the current 2.2% to 2.8% by the end of the year. Even if this increase is due to base effects, it is unlikely that the BoE will start lowering rates at a pace comparable to the Federal Reserve. Currently, the market predicts only one rate cut this year, specifically in November, by 25 basis points, with the rate expected to be at 4.75% by the end of the year and 3.25% by the end of 2025. In contrast, the Fed's rate forecast is much more aggressive—by the end of the year, the futures market sees the rate in the 4.00/4.25% range, and it could drop to 3.25% as early as March. The dynamics favor the pound, and if this forecast materializes, the bullish momentum for the pound will gain additional strength.

Regarding the economy, signals from the UK are more favorable than those from the US. Retail sales growth in August exceeded all forecasts, indicating strong consumer demand and supporting inflation. PMI indices have slightly decreased but remain in expansion territory, which casts the UK economy in a favorable light compared to the US. Most fundamental factors suggest a pressure on expectations for a decline in the pound.

The net long GBP position adjusted by £2.2 billion in the reporting week, down to £5.18 billion. Positioning remains bullish, although the calculated price has lost direction.

The pound has overcome the resistance at 1.3266, which we previously identified as the nearest target, and has reached a 2.5-year high. From a technical perspective, the bullish momentum is strong, and there are no significant resistances until 1.4245. The slowdown in the calculated price is linked to the balance of forces ahead of last week's Fed meeting when the market consensus was that the Fed would raise rates by 25 basis points and that the US economy was far from recession. Both factors are no longer in play, so there are fewer bullish signals for the dollar, allowing the pound to take advantage of the situation and attempt to build on its success. The level of 1.3266 has turned into support, and buying is justified on a pullback to this level, while a deeper correction seems unlikely.