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The Pound Sterling (GBP) is under pressure against major currencies, while UK 10-year government bonds lag behind global peers. The Bank of England (BoE) lowered its policy rate by 25 basis points to 4.50% on Thursday, as expected, but emphasized a “gradual and careful approach” to future rate cuts. Markets are now pricing in 75 to 100 basis points of easing over the next year, according to BBH FX analysts.
Key Takeaways from the BoE Decision
- Monetary Policy Committee (MPC) Vote: The 7-2 decision reflected a shift in policy stance. The two dissenters—Swati Dhingra and Dr. Catherine Mann—advocated for a larger 50bps cut.
- Surprising Shift from Catherine Mann: Previously a strong advocate for higher rates, Dr. Mann’s shift signals an increasing openness to aggressive easing in the coming months.
- Policy Strategy: BoE minutes suggest that some members believe a more proactive approach would provide a clearer signal on financial conditions. However, the broader consensus remains in favor of measured rate reductions until inflation shows more persistent declines.
Market Outlook
The GBP remains defensive, with traders adjusting expectations for a faster pace of rate cuts. As inflation concerns ease, the BoE may pivot towards more aggressive monetary easing, weighing further on the Pound’s performance in global markets.
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