United Kingdom: Balanced inflation and politics risk – HSBC

FXStreet Insights Team FXStreet

HSBC’s Willem Sels and Lucia Ku note that UK inflation remains above target but see risks as more balanced after the US-Iran interim peace agreement. They expect no further rate hikes in 2026, keep a neutral stance on UK gilts and UK equities, and stay overweight 5–7-year GBP investment grade credit, while upgrading GBP high yield to neutral despite ongoing political uncertainty.

BoE on hold with neutral UK view

"As expected, the Bank of England (BoE) maintained its policy rate at 3.75% in June. While CPI moderated to 2.8% in May, it remains above target. Wage pressures and weak consumer confidence persist, while economic growth is expected to remain modest amid mixed indicators."

"With energy prices stabilising following the US-Iran interim peace agreement, inflation risks are now more balanced. Accordingly, we have revised our rate forecast to reflect no further hikes in 2026. We maintain a neutral position on UK gilts and UK equities, while remaining overweight on GBP investment grade credit, favouring 5-7-year duration. We also upgrade GBP high yield to neutral due to improved risk sentiment."

"Inflation is expected to peak at 3.25% in Q4 as the second-round effects from the Middle East conflict are contained, we now expect the Bank of England to hold rates steady this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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