GBP Forex Forecast: BoE Holds as UK Inflation Hits 2.9%

UK headline inflation climbed to 2.9% in August, with core and services components holding steady, reinforcing expectations that the Bank of England will keep rates unchanged at its next meeting. That said, the data doesn't fully rule out further tightening down the road, keeping GBP forecasts split between near-term consolidation and delayed upside.

Markets are currently pricing in four additional rate hikes, a scenario that looks overly aggressive given the concurrent slowdown in wage growth and a visibly weakening labour market. This mismatch between market pricing and underlying fundamentals creates two-way risk for GBP pairs, particularly GBP/USD, as traders reassess the BoE's tightening runway.

For forex forecasting purposes, the key signal to watch is whether wage growth continues decelerating faster than inflation cools, which would likely force a repricing lower in rate-hike expectations and pressure sterling.