The British pound fell about 1% to $1.23 after the Bank of England lowered interest rates by 25bps as expected, as markets reacted to the central bank’s dovish tilt.
Pound depreciates after BoE
The decline in sterling was exacerbated by the fact that two policymakers, including known hawk Catherine Mann, voted for a more aggressive 50bps cut, signaling that some members see a pressing need for faster monetary easing amid weakening economic conditions.
What BoE said
While the Bank reinforced its message that a gradual and careful approach to further cuts remains appropriate, it also acknowledged that substantial progress has been made on disinflation over the past two years, suggesting that the inflationary pressures that had driven rates higher are now easing. In response to the policy shift, traders increased their bets on additional rate reductions, now pricing in around 94bps of cuts for 2025—equivalent to three more reductions this year.
Growing concerns over the UK’s economic outlook
Market expectations for further easing reflect growing concerns over the UK’s economic outlook, with sluggish growth and softening inflation potentially opening the door for the Bank to accelerate rate cuts if needed. The pound’s decline also highlights the delicate balancing act faced by the central bank, as a more aggressive easing path could weigh on the currency while supporting economic activity. Investors will now closely watch upcoming inflation and labor market data for further signals on the Bank’s trajectory in the months ahead.
