According to analysts at MUFG, this rebound is unlikely to last. They expect the pair to resume its downward trajectory, projecting a move toward 1.1240 in the near term, as both monetary and fiscal developments remain negative for sterling. Looking further ahead, the bank forecasts a deeper decline to about 1.11 by the second quarter of 2026.
On the monetary side, MUFG maintains high confidence that the Bank of England will cut interest rates at its December meeting — unless UK inflation unexpectedly comes in much hotter than anticipated. Although markets have partially adjusted their expectations, a rate cut would still leave the pound more exposed to downside risks.
Regarding the November 26 budget, MUFG highlights that the government’s reported U-turn on income tax hikes was likely influenced by updated estimates showing a smaller fiscal deficit. Even so, analysts argue the reversal raises fresh questions about the government’s credibility and could place additional pressure on sterling.
Adding to the unease last week were rumors of a potential leadership challenge against Prime Minister Starmer. While MUFG does not expect an immediate political shake-up, it warns that underlying tensions could keep investor sentiment toward the pound fragile.