GBP/USD Forecast: Pound Sterling Falls after Softer Inflation Boosts BoE Cut Bets

Modified: Wednesday, 22 October 2025 08:15 BST - Written by David Woodsmith

STORY LINK GBP/USD Forecast: Pound Sterling Falls after Softer Inflation Boosts BoE Cut Bets

The Pound US Dollar (GBP/USD) exchange rate slipped further on Wednesday after softer-than-expected UK inflation data increased bets on a Bank of England (BoE) interest rate cut before year-end.

At the time of writing, GBP/USD was trading around $1.3328, down approximately 0.28% from the start of the session.

The Pound (GBP) came under pressure after the Office for National Statistics (ONS) reported that consumer price inflation held steady at 3.8% in September, missing forecasts of a rise to 4.0%.

Core CPI fell sharply from 4.6% to 3.5%, while services inflation stabilised at 4.75%, below expectations of 4.8% and 0.3 percentage points under the BoE’s latest projection.

The weaker data indicates that underlying price pressures are cooling faster than policymakers anticipated, particularly as food prices — a key concern for the BoE — unexpectedly declined on the month.

According to ING, the figures delivered a clear dovish signal for the central bank and increased downside risks for the Pound.

As the bank noted: “The September UK inflation reading released this morning is sending a dovish signal to the Bank of England and weighing on the pound. Headline inflation remained unchanged at 3.8% (consensus 4.0%), while core slowed down from 4.6% to 3.5% and services CPI stabilised at 4.75% versus expectations of 4.8% and 0.3pp below the BoE’s latest forecast. Our UK economist notes that the main dovish surprise comes from food prices – a big concern for the BoE of late – which actually fell on the month and are now 0.5pp below the BoE's August forecasts.”

Markets responded by increasing expectations for a BoE rate cut before the end of 2025, driving gilt yields lower and keeping Sterling under pressure across major currency pairs.

The US Dollar (USD), meanwhile, found modest support during Wednesday’s European session amid cautious market sentiment and lingering global growth concerns.

With the ongoing US government shutdown continuing to delay key data releases, investors turned their attention to upcoming commentary from Federal Reserve officials for policy cues.

Policymakers have broadly maintained a cautious tone, acknowledging softening inflation but insisting that rates must stay restrictive until the 2% target is clearly within reach.

GBP/USD Forecast: Central Bank Commentary to Steer Direction

Looking ahead, movement in the Pound to US Dollar exchange rate will likely hinge on upcoming speeches from both Bank of England and Federal Reserve policymakers.

If BoE officials hint that cooling inflation is paving the way for policy easing, GBP could remain under pressure into the weekend.

Conversely, any hawkish signals from Fed speakers may lend the ‘Greenback’ further support, keeping GBP/USD subdued through the second half of the week.

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TAGS: Pound Dollar Forecasts