The Bank of England is expected to cut its key interest rate from 4.25% to 4.0% on Thursday—its fifth reduction since August 2024.
The move comes as the central bank faces conflicting pressures:
- a weakening labour market, partly worsened by recent tax hikes and Trump trade tensions,
- versus persistent inflation running above target.
While Governor Andrew Bailey and most of the Monetary Policy Committee are likely to back a quarter-point cut, the decision may be split. Two members could argue for a larger cut to support growth, while others may oppose any easing due to inflation worries.
Markets will be watching closely for any change in the BoE’s “gradual and careful” guidance, which has so far implied one cut per quarter. But with inflation possibly reaching 4% in coming months—double the BoE’s 2% target—that pace may come under review.
Investors currently expect another cut in November, but only one or two more in 2026, which would leave the Bank Rate around 3.5%, still well above the euro zone’s 2%. The rate decision is due at 1100 GMT, followed by a press conference at 1130 GMT.
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I posted on Deutsche Bank seeing divergence with the European Central Bank yesterday:
EUR/GBP the central pair to watch in all this. EUR has caught a bid at the expense of the UK pound heading into today’s meeting, which makes sense. The question for traders is if that will continue. I expect some sort of ‘sell the fact’ response later.
