Bank of England delivers hawkish rate cut – Commerzbank
|As expected, the Bank of England (BoE) yesterday cut interest rates by 25 basis points and lowered its inflation forecast for the fourth quarter, Commerzbank’s FX analyst Michael Pfister notes.
BoE to cut rates much more gradually
“More surprising were the forecasts for the coming years: the inflation forecast for 2025 was raised by 0.5 percentage points to 2.7%, while the forecast for 2026 was raised by 0.6 percentage points to 2.2%. At the same time, the BoE now expects growth next year to be almost twice as high as previously thought, at 1.7%. Clearly, the BoE has taken into account the recent UK budget, which is likely to be much more expansionary in the short term than previously expected.”
“In my view, this was a rather hawkish rate cut, which I had not expected. While I could have imagined that the new forecasts would reflect the risks posed by the UK budget, I had thought that, given the BoE's rather dovish stance in recent years and recent statements by central bank officials, the changes would be smaller, leaving the door open for another rate cut in December. Instead, we have to acknowledge that after yesterday's decision, another move in December has become rather unlikely. Our economists have therefore adjusted the BoE forecast accordingly.”
“For the Pound Sterling (GBP), this bodes well for the coming months. It shows that the BoE will continue to cut rates much more gradually than the ECB, while the British economy is likely to grow much faster than its eurozone counterpart. Only the new forecasts for 2026 are likely to cause some concern, as the BoE now expects weaker growth and higher inflation in that year. However, a lot can happen between now and then, which is why GBP optimism prevails for the time being.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.