The Bank of England (BoE) is gearing up for its first policy meeting of 2024, set to take place on what is famously termed “Super Thursday.” All eyes are on the central bank‘s decision regarding the benchmark interest rate, with expectations leaning toward a steady maintenance at 5.25%. The announcement, slated for 12:00 GMT, will be accompanied by the release of the Monetary Policy Report (MPR) and followed by a press conference hosted by Governor Andrew Bailey at 12:30 GMT.
Despite market anticipations of a potential 100 basis points rate cut this year, starting in the second quarter, the BoE is projected to uphold its current restrictive stance. The narrative of “higher interest rates for longer” is expected to prevail, resisting market expectations of an early shift towards a dovish policy. Factors such as a surprise increase in December’s annual inflation, heightened geopolitical tensions in the Middle East, and the impending impact of rising borrowing costs may discourage policymakers from adopting a more dovish stance at this juncture.
BoE Governor Andrew Bailey, in early January, highlighted the impact of disruptions in shipping traffic on monetary policy, indicating potential challenges and increased costs. Deputy Governor Sarah Breeden also emphasized the importance of maintaining a restrictive monetary policy for an extended period during the December policy meeting.
As the UK annual inflation rebounds to 4.0% and economic activity shows signs of resilience, the BoE is expected to keep borrowing costs higher for an extended period. The focus will shift to the central bank’s updated inflation and growth forecasts, as well as Governor Bailey’s press conference, for insights into the timing of any potential policy shift.
Goldman Sachs analysts anticipate upward revisions to growth projections in 2025 and 2026, coupled with a potential near-term cut in rates. However, the analysts caution that an earlier cut in March cannot be ruled out entirely, especially in the face of deteriorating growth coupled with a disinflation process.
The potential impact of the BoE’s interest rate decision on GBP/USD is closely monitored by analysts. A dovish stance, accompanied by downward revisions to inflation and growth outlook, could elevate the likelihood of a May rate cut and weigh on the Pound Sterling. Conversely, a maintained hawkish rhetoric could lead to a recovery rally for the GBP/USD pair.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, provides a technical outlook, noting that GBP/USD faces key support levels and emphasizes the importance of recapturing the 21-day Simple Moving Average (SMA) for a bullish momentum.
Traders are advised to remain vigilant, with strong support at the January 17 low and potential downside targets in case of a bearish scenario. Upside movement is contingent on sustained recapture of critical SMA levels and overcoming key resistance points.