GBP May Weaken on BoE Caution and Below-Forecast UK CPI, Political Risk Looms

According to Bank of Rabobank analyst Jane Foley, sterling may decline if the Bank of England signals a cautious stance on rate hikes amid softer-than-expected UK inflation data released Wednesday (June 17). Political uncertainty from Thursday's by-election adds downside risk; a potential victory by Andy Burnham could challenge Prime Minister Starmer's leadership and raise concerns over fiscal policy continuity.

Burnham's left-leaning stance contrasts with the fiscal conservatism of Chancellor Rachel Reeves, whose potential replacement would likely unsettle UK gilt markets and further destabilize sterling.