The Bank of England is expected to keep its policy rate unchanged for the seventh consecutive meeting on Thursday, despite the recent acceleration of disinflationary pressures in the UK and speculation of two interest rate cuts this year. Inflation figures in the UK saw the headline Consumer Price Index (CPI) increasing by 2.0% and the core CPI rising by 3.5%, hitting the bank’s goal for the first time since October 2021. The central bank is expected to hold its policy rate at 5.25% and is likely to maintain a cautious stance, particularly highlighting services inflation and the tight domestic labour market.
Money markets are pricing in around 45 bps of easing by the BoE by year-end and around 30 bps by November. BoE Governor Andrew Bailey has indicated that even a small cut to the Bank of England’s interest rate would keep monetary policy still restrictive. Outgoing Deputy Governor Ben Broadbent has mentioned the possibility of a summer rate cut but emphasized that data would need to align with projections. Senior Macro Strategist at Rabobank Stefan Koopman believes that while the MPC is considering lowering interest rates, the current data does not justify such a move, and a pre-election rate cut would be complicated.
The expected interest rate decision by the Bank of England is unlikely to bring any surprises, with the British Pound expected to remain within its current range. GBP/USD has maintained a constructive bias and could see further gains, potentially revisiting the June high of 1.2860. Immediate support for the currency pair lies at the June low of 1.2656, with further support at the 100-day and 55-day SMAs of 1.2639 and 1.2618, respectively. A deeper pullback could test the 2024 bottom of 1.2299.
The Bank of England’s interest rate decision, which is announced at the end of its eight scheduled meetings per year, has the potential to impact the Pound Sterling based on its hawkish or dovish outlook on the economy. A hawkish view and a raise in interest rates are bullish for GBP, while a dovish view and unchanged or lowered interest rates are seen as bearish. The current consensus for the BoE’s interest rate decision remains at 5.25%, with the central bank expected to maintain its cautious stance given the prevailing disinflationary pressures in the UK.
In conclusion, the Bank of England is set to hold its policy rate at 5.25% on Thursday, with a cautious message likely to be delivered amidst disinflationary pressures in the UK. While speculations of interest rate cuts persist, the central bank is expected to maintain its current stance and wait for further data before making any significant changes. The impact of the BoE’s decision on GBP/USD remains uncertain, with the currency pair expected to trade within its current range following the announcement.
