The Bank of England (BoE) is set to meet on Thursday, February 6 at 16:00 GMT+4 for its first meeting of 2025. Expectations point toward a 25-basis point (bps) rate cut to 4.5%, which would mark a shift toward more aggressive easing to improve a stagnating UK economy.
The decision, vote split and comments from BoE officials will all impact the British Pound and be of interest to traders.
Breaking Down the Decision
The central bank is expected to cut rates by 25 bps with an expected vote split of 8-1. Rate cut expectations come amid ongoing concerns about sluggish economic growth and persistent inflationary pressures in the UK economy. ⁽¹⁾
The Bank of England is expected to shift towards a more dovish outlook, where economic growth remains pressured due to weak data.
The UK’s 2024 Q4 GDP growth estimate was revised downward from 0.3% to flat, lowering the forecast for 2025 growth, which may be adjusted from 1.5% to around 1%. Additionally, UK government bonds have risen since November, increasing borrowing costs and further dampening economic activity. ⁽²⁾
UK inflation dropped slightly to 2.5% in December 2024, but service and manufacturing sector firms are cutting jobs due to rising costs and tax increases. While the Bank of England is expected to lower interest rates, concerns remain over persistent wage growth and inflation pressures. ⁽³⁾
The BoE is expected to avoid making explicit commitments about future rate moves, instead reiterating that gradual easing will continue. While four rate cuts this year are expected by markets, there remains the possibility of more aggressive reductions, especially if services inflation continues to decline and the labor market weakens. ⁽⁴⁾
How Could Markets React?
GBP pairs will be mostly impacted by the BoE’s rate decision. Ahead of the meeting, the British pound has shown some volatility. Following recent economic data and inflationary pressures, the Pound’s value has slightly declined, complicating the BoE’s rate cutting plans.
Analysts expect that if the BoE follows through with the expected cut, it could lead to a slightly weaker Pound. However, traders aren’t ruling out that a dovish surprise, such as a more aggressive stance on future cuts, could dampen the Pound’s outlook further. ⁽⁵⁾
Markets will also focus on the decision’s vote split within the Monetary Policy Committee (MPC). An expected 8-1 vote in favor of the likely rate cut could reinforce a dovish sentiment in financial markets. Unexpected shifts in the voting split, such as members shifting for a more substantial cut, may lead to increased volatility in GBP pairs. ⁽⁶⁾
