Make your mind up
Sterling wasn’t excessively punished during last week’s monetary policy decision. Despite the majority of the Committee voting to keep rates on hold, including Governor Andrew Bailey, there were three dissenters. It’s not uncommon to have outlying votes even within the small Monetary Policy Committee of the Bank of England. However, those outlying votes typically vote in the same direction, hinting at a slight bias or tilt for tighter or looser policy versus the median voter. Not on this occasion, two votes for further hikes contrasted with one vote for an immediate rate cut. Overall the decision was still seen as relatively hawkish, pushing GBP higher during the session.
Bailey has enfranchised a more open form of governance versus his predecessors. By encouraging an open debate and vote such decisions have become more likely and last week was an opportunity to watch the market’s reaction to such a decision. The hawkish tilt that would have been received by a majority vote to hold rates, with a minority element seeking to raise rates, would have been diluted by the singular vote to cut rates. Overall, the inflation forecasts that were published alongside the decision are what drove markets to moderate their mid-year rate cut expectations. Inflation forecasts showed the bank expecting inflation well above its 2% target. Money market and gilt curves tracked higher at key dates surrounding the May and June meetings.
This was a complex decision for markets to analyse. Yesterday’s sell off in GBPUSD through year to date lows shouldn’t be logically disentangled from last week’s BoE decision. Of course the strong Dollar environment encouraged by Friday’s jobs numbers supported this trend. Weakness within other Sterling crosses serves to support this narrative of a market favouring selling GBP. The Bank of England decision was worded to moderate any emerging bias towards rate cuts. Longer term, the decision is likely to serve to support GBP within its current ranges.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Friday night US Markets
Humphrey Percy
Mon 13 Oct 2025
Friday night US Markets There was an element of the US stock market temporarily running out of oxygen at the heady heights that it had reached and looking for an excuse to take profits/sell. That excuse was provided in spades by POTUS who pronounced that he would implement much higher tariffs against China. That was […]
Daily Brief – UK Growth
Humphrey Percy
Fri 17 Oct 2025
UK Growth To refresh your memories, UK Growth fell 0.1% in July and the hope or more accurately the expectation was that July was an aberration which would be rectified when the men with the clipboards reported on UK Growth for August. In the case of Chancellor Reeves, that expectation was rather more of a prayer […]
Daily Brief – UK Government Borrowing
Humphrey Percy
Wed 22 Oct 2025
UK Government Borrowing Borrowing for September was reported yesterday by the Office of national Statistics or ONS to be GBP 20.2 billion, up by GBP 1.6 billion from the same month in 2024. What that means is that public spending exceeded tax income by that amount. That takes borrowing for the first 6 months of […]
