Sterling’s Rally Limited by Stagflation Risks, Says MUFG

Sterling's upside remains limited due to the U.K.'s sluggish growth outlook and persistently high inflation — a combination pointing to stagflation, MUFG Bank analysts warned in a note Friday.

The pound initially rose after the Bank of England cut interest rates as expected on Thursday. However, the decision came with a split vote (4 of 5 members favored holding), and the BOE reiterated its cautious stance on further easing.

“A central bank constrained from cutting due to sticky inflation isn't a bullish case,” MUFG analysts said.
“The stagflationary tilt is hardly a positive for investor sentiment.”

GBP/USD slipped 0.1% to $1.3424 after touching a 10-day high of $1.3448 on Thursday, according to LSEG data.
The euro traded flat against the pound at 0.8673.