Bank of England Governor Andrew Bailey said markets were moving too fast in pricing multiple interest rate rises this year. The surge in short-dated UK rates during the Middle East crisis followed a hawkish MPC meeting on 19 March and was linked to weaker business and consumer confidence.
Two-year swap rates rose by more than 100bp last month. Bailey pointed to the need to meet the BoE’s remit while limiting harm to the economy and households.
BoE Survey Signals In Focus
Attention is on the BoE Decision Maker Panel survey of 2,000–2,500 CFOs. The survey is expected to give clues on pricing power, including whether selling prices and wage costs may rise.
The scenario described includes expected selling prices near 3.0% year-on-year and wage costs at 3.5/4.0% YoY. Markets were described as pricing close to 50bp of BoE tightening this year.
If survey results support weaker pricing power and limited second-round inflation effects from an energy supply shock, expectations for tightening could ease. Under that outcome, EUR/GBP was projected to return to the 0.8790/8800 area, where it traded at the end of February.
We remember the situation back in March 2025 when Bank of England Governor Andrew Bailey pushed back against the market. At the time, traders were pricing in aggressive rate hikes because of an energy shock, but he warned this was hurting confidence. He stressed the BoE should not cause unnecessary damage to the economy.
Implications For Eur Gbp Positioning
His concerns from last year appear to have been justified by the latest data. The most recent figures show UK inflation has fallen to 2.1%, very close to the bank’s target, while the economy showed a slight 0.1% contraction in the last quarter of 2025. With wage growth also slowing to 3.8%, the argument for high rates is much weaker now.
This suggests that the Bank of England will likely continue its softer tone in the coming weeks. The market is no longer pricing in hikes like it was in 2025; instead, it now expects potential rate cuts later this year. Any upcoming survey data showing weak business pricing power will only reinforce this dovish view.
Traders should therefore consider positions that benefit from a weaker pound against the euro. If the BoE signals it is leaning towards cutting rates, EUR/GBP could rise back towards the 0.8800 level seen in early 2025. Buying EUR/GBP call options could be a way to position for this potential move.
