Looking ahead to BoE Thursday
On Thursday the Bank of England will publish its second monetary policy decision of 2025. Casting our minds back momentarily to its last publication in February, we are reminded of the surprising shift in narrative from key MPC members. The shift in voting patterns saw one member, previously viewed by the market as hawkish having favoured prompt rate hikes, call for a 50-basis point cut at the February meeting. Sterling wasn’t overly impacted by this event in the longer run and GBP was still able to recover ground from the receding US Dollar.
The path of short end UK rates couldn’t be more important at this time. As Rachel Reeves prepares to deliver her spring budget, the cost of borrowing is critical to deciding which public spending and tax revenue decisions the Chancellor can afford. There is no rate cut expected from Thursday’s decision. However, as it did in February, the bank could still create some surprises based upon its voting pattern and decision’s precise wording. Since the February decision, cable has rallied and now stands on the cusp of 1.30. Much of that rally has been driven by US dollar weakness, however the change in price level could leave Sterling vulnerable to a more dovish decision.
Thanks to the change in the tax burden for employers, the UK labour market has been in focus for the MPC. So far redundancies haven’t shown a significant deterioration in the labour market. In fact, wage growth continues to outpace the level of which the Bank of England would like to see it. Ultimately, thanks to stubborn wage and services price inflation, Thursday’s decision is less likely to create significant headaches for Sterling. Where there does remain significant room for adjustment is in the longer dated portion of the UK’s yield curve where we observe a stubbornly high terminal rate. A deterioration of yields in this portion of the curve is likely and arguably necessary, but it could also entail a deterioration in GBP.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – Forgiven
Charles Porter
Tue 10 Mar 2026
Forgiven Even with an equity correction underway at the start of yesterday’s session, it still appeared that the market was under-pricing the risk of a protracted conflict in the Middle East. FX and fixed income asset classes had reacted more severely with stronger defensive bids into currencies including the Dollar and Franc, but still the […]
Daily Brief – Fade America
Charles Porter
Thu 26 Feb 2026
Fade America There have been times during Trump’s second term that have had markets and financial commentators alike calling for an era of ‘sell-America’. Sell-America is the notion describing a scenario in which investor sentiment sours towards the US so much so that valuations across US assets decline. This is a unique scenario because many […]
Daily Brief – Sell first, question later
Charles Porter
Thu 5 Mar 2026
Sell first, question later The jury is still out on whether the initial “sell everything” reaction to a sudden increase in geopolitical risk has concluded. Certainly, some volatility remains which serves as an indication that trading conditions have not calmed whilst markets continue to question how this chapter of US military intervention ends. Emerging markets […]
