BOE Rate Decision: A Closely Watched Hold?

The BOE is expected to agree to keep rates unchanged on Thursday. But since it finds itself in a particularly difficult situation, traders will be keen to find any clues for what happens next. Persistently high inflation but sluggish growth makes it difficult to figure out whether the central bank will be inclined to be dovish or hawkish.

The consensus among economists is that there will be three more rate cuts this year, with the next one being at the May meeting. If that were the case, it’s likely that the BOE’s statement will provide some advance warning. That could end up weakening the pound a bit. On the other hand, if the BOE (Bank of England) doubles down on its rhetoric about being “cautious”, then the pound could get some support.

Threading a Really Small Needle

Inflation was expected to rise through the winter and then turn around again. The latest CPI report showed a modest drop in the rate of increase in consumer prices during February. That might be seen as good news, but it’s still only one data point. The BOE will likely need more evidence that inflation has, indeed, turned around and is heading back to the target. That would incline the balance in favor of keeping rates elevated.

However, January GDP numbers unexpectedly turned negative. There had been some signs of relief when December GDP exceeded expectations. But now it seems like that bump higher in the final month of last year was an exception. If the economy is slowing down, then inflation would come down as well. That puts the BOE (Bank of England) at risk of undershooting the target. As long as the economy shows signs of slowing down, the central bank would want to lower rates.

Figuring Out Which Side Matters

Investors will likely be looking at the commentary carefully to see whether the issue of the economy or the issue of inflation carries more weight. In this scenario, one Monetary Policy Committee (MPC) member’s actions might stand out: Catherine Mann. She was previously a strong hawk, but at the last meeting suddenly switched to vote for a 50 bps cut.

She argued, and repeated her comments ahead of the upcoming meeting, that the bank needs to give stronger signals. What this means is that in her estimation the BOE needs to make larger moves with interest rates. Presumably she will be one of the dissenters at the upcoming meeting, voting for a drastic cut. That could mean there is a three-way vote, with those in favor of a hold, those looking for a quarter point, and those in favor of a half a point.

The Reaction in Cable

The GBPUSD has largely been upbeat this year, but the trend higher hasn’t been due so much to what’s been going on in the UK. Which means that the market might look past the BOE (Bank of England) rate decision, and focus on other matters. That includes the upcoming Spring budget announcement next week.

Meanwhile, the weaker dollar has been giving support to cable, lately. While headlines have focused on the global economic problems around tariffs, the UK seems to so far largely been escaping them. US tariffs on metals were global, but the UK exploits very little steel and aluminium. This could give the pound a bit of a calm spot amongst global markets riled up by tariffs.

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