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BNP Paribas flags UK slowdown, higher inflation, and a BoE hike in H2 2026

The forecast calls for UK inflation to rise to 3.2% and for GBP to weaken versus the US dollar into 2027, while 10-year gilt yields stay elevated before easing in 2027.

Reported · Written up by our desk · Central Banks

BNP Paribas strategists expect UK economic growth to cool, projecting it will slow to 1.0% in 2026 from 1.3% in 2025, while renewed inflation pressure lifts prices to 3.2%. FXStreet reports the inflation risk is linked to the war in Iran.

The strategists also anticipate the Bank of England will deliver a 25 basis point rate hike in the second half of 2026, with 10-year gilt yields staying elevated in the near term before easing in 2027, according to FXStreet.

Within the currency outlook, the report forecasts the British pound (GBP) will depreciate against the US dollar (USD) into 2027.

FXStreet adds that in the market, GBP/USD recently retreated toward the 1.3300 area, with weaker crude oil prices tied to a pause in the Middle East conflict and softer UK inflation weighing on expectations for near term BoE tightening.

Latest closeWTI crude $90.47 ▼1.9%|GBP/USD 1.332 ▼0.4%

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