How has Pound reacted to rate cut?
How has the Pound reacted to the rate cut and was it narrower than you expected? Thoughts ASAP please.
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As widely expected, the Bank of England cut the base rate today by 0.25% to 3.75%, its lowest level for three years. But the surprise was that, far from being unanimous, we had a second 5-4 vote by the MPC but this time with four members voting to leave UK interest rates unchanged. This hawkish cut signals a more gradual pace of cuts in 2026 than the markets had priced in. It was good news for Pound sellers as the Pound immediately jumped 0.24% against the Euro on the announcement and recovered its morning losses against the Dollar. 2026 will remain a very difficult year for the UK economy and the Pound but thanks to ‘Santa’ Andrew Bailey, we have a rare ray of sunshine for the Pound at the time of writing. A hawkish vote count has prevented Sterling from entering freefall.
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After the Bank of England announced a 25bps cut, the Pound actually reacted positively and erased previous losses over the past 24 hours. The reason for this is that the cut was already priced in, but the fact that the Bank of England believe the UK will be back to 2% inflation by April is a positive for the economy and helps with a more positive outlook overall for the Pound. I do not believe this will be a trend shift and gains should be taken advantage of, as I do not see a massive Sterling rally just yet.