Bank of England: Pound Sterling Could Dive vs Euro, Dollar on Unexpected BoE Cut

March 19, 2025 - Written by David Woodsmith

STORY LINK Bank of England: Pound Sterling Could Dive vs Euro, Dollar on Unexpected BoE Cut

There are very strong expectations that the Bank of England will hold interest rates at 4.50% this week with all 61 economists in the latest Reuters survey calling for no change.

- The Pound will slump if there is an unexpected cut.

- Assuming rates are left at 4.50%, the vote split and guidance will be the key elements.

- Stronger than expected dissent would undermine the Pound.

- A 9-0 vote for unchanged rates would boost the Pound.

- Uncertainty is likely to dominant rhetoric.

- More hawkish guidance on inflation concerns would also support the Pound.

- Any guidance on the May meeting will be important.

Assuming interest rates are held at 4.50%, the relative weights ascribed to growth and inflation will be pivotal both in the vote split and guidance from the bank.

There is no Monetary Policy Report or forecast updates at this meeting.

The bank is likely to highlight major uncertainty over the domestic and global outlook.

After voting for a larger cut at the last meeting, markets expect that Dhingra and Mann will vote for a cut, especially with Mann likely to pursue her activist policy stance.

Deputy Governor Ramsden has cast doubt on inflation trends, lessening the chance of calling for a cut at this meeting, but MPC member Taylor could be a candidate for backing a cut.

Danske Bank commented; “We expect the vote split to be 6-3 with the majority voting for an unchanged decision and Dhingra, Taylor and Mann voting for a cut.”

ING added; “There should not be much of a communication change at the BoE meeting.”

The bank expects a 7-2 vote to hold rates at 4.50%.

Global uncertainty is likely to be a key element for the committee.

HSBC senior UK economist Elizabeth Martins commented; "Global developments around tariffs and defence spending have mixed implications. We suspect the BoE won't want to rush to judgement on what it all means for the UK economy, with no concrete news yet."

Pantheon Macroeconomics added; “the MPC will have to consider US President Trump’s actions which have been driving an equity market sell-off and skyrocketing uncertainty and therefore fuelling concerns over the outlook for global economic growth.”

There are also important domestic uncertainties, especially with the UK budget the following week.

The latest labour-market data will be released on Thursday a few hours ahead of the BoE announcement.

According to UBS economist Dean Turner; "We're probably going to see some slowdown in hiring which, other things being equal, should mean wage pressures moderate. But I'm not expecting that we're going to see a sharp increase in layoffs."

Allan Monks, economist at J.P. Morgan "The BoE will have to incorporate additional (fiscal) tightening in the upcoming Budget as it meets in May, and we expect a cut at that meeting."

The BoE is also still likely to be uneasy over inflation developments.

Expectations for inflation in five years' time or longer rose to 3.6% in February from 3.4% in the previous survey, conducted in November, the highest reading since November 2019.

One-year expectations also increased to 3.4% from 3.0% – the highest reading since August 2023.

MUFG expects the bank will be wary over inflation; “We still expect the BoE to stick the current quarterly pace of rate cuts and leave the door open to another cut in May. Risks are tilted towards more hawkish guidance to reflect concerns over wage growth and stronger activity data recently.”

Credit Agricole sees scope for Pound support given reservations over inflation; “We therefore believe that signals from the MPC that it envisages only a very gradual and relatively shallow easing cycle from here could underscore the rate appeal of the GBP over the EUR and thus help push EUR/GBP lower once again.” (GBP/EUR gains)

Danske Bank sees the potential for a dovish shift; “We expect an unchanged decision, keeping the Bank Rate at 4.50%. We expect the market reaction to be rather muted but look out for any guidance on altering the gradual approach to cutting interest rates. Our bias is for a swifter cutting cycle than currently priced by markets, which could weigh on GBP FX.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Sterling Forecasts