💷 GBPUSD Gains Ahead of BoE Decision

Despite recent disappointing macroeconomic figures, the Bank of England is widely expected to hold interest rates steady during today's Monetary Policy Committee (MPC) meeting. While inflation has cooled (dropping to 3.8% in September, below the BoE's forecast), service price pressure has eased, and wage growth has slowed, the rate of inflation remains nearly double the central bank's 2% target. Furthermore, the likelihood of fiscal tightening via tax increases in the forthcoming budget is a factor.

Consequently, the MPC is likely to prioritize seeing a sustained disinflationary trend before contemplating monetary easing, which is generally not anticipated until Spring 2026, when inflation is projected to near 2.5%.

Market Pricing and Dissenting Voices

The market currently prices in only a 25% probability of a rate cut today, with a full 25 basis point cut fully factored in for February. However, it is notable that the combined probability of a cut by December sits near 70%, mirroring the pricing seen recently in the US, where a December cut was nearly fully priced in. Source: Bloomberg

While the market assigns a low 25% chance to a rate cut today, this scenario appears underpriced. A key factor that will shape the inflation outlook for the coming quarters is the UK’s budget outline, due at the end of November. Should the budget deliver the anticipated fiscal restraint, the BoE may gain confidence in a continued disinflationary path and proceed with a rate reduction at its December meeting.

In light of this, there is a chance today that a dovish signal will emerge, both through the official statement and the voting split. Recently, two MPC members voted for a cut; today, that dissent could grow to three members.

Impact on the Pound

A hold decision could support the recent rebound in the GBP/USD pair. The pair is currently testing a range corresponding to a similar upward correction seen in late October. If the tone of today's decision is not excessively dovish, this correction could extend further, potentially towards the 1.3200 area.

Conversely, a rate cut would likely lead to an immediate dip below the 1.30 level. This downward scenario could also materialize if the BoE signals a clear readiness to ease policy in December, contingent on the forthcoming budget details.