BOE Expected to Hold, Keep Cautious Easing Track

Despite inflation cooling last month, the BOE is set to keep rates on hold for one more month while investors focus on the timing of the next rate cut.

Still Not Cool Enough to Cut

Traders were waiting for key inflation data just a day ahead of the BOE meeting on Thursday, where MPC members are expected to decide on interest rates. , showing that consumer prices cooled, though not as much as analysts expected. Headline inflation fell to 3.4% compared to the 3.3% expected, while core dropped to 3.5%, which was below an estimate of 3.6% and still sharply below the 3.8% of the month before.

Despite providing some sort of relief for the BOE, the reaction in the currency suggests that markets don’t reflect expectations of monetary policy easing in the short term. However, the inflation numbers appear to have slightly , indicating that the central bank might provide some hints during the upcoming meeting. Traders will closely watch the vote count to gauge how many dissenters support a hold, as this will indicate their willingness to cut at the next meeting. On Thursday, there is a near-unanimous consensus that the BOE will hold rates unchanged.

It's All Downhill, But at What Rate

Economists polled before the release of the inflation data largely agreed that through the rest of the year due to a slowing economy. A majority of economists also agreed with a rate cut at the August meeting, pointing to weaker-than-expected jobs growth reported a week ago, as well as slowing demand in the services sector, a key point emphasised by BOE officials as a matter of concern for not lowering rates.

The 3-way split at the last meeting suggests , but analysts still believe that the vote will be close enough this time around. A potential complication is the recent rise in oil costs, which could increase inflationary pressure in the UK later in the year if energy prices remain elevated, providing an additional reason for hesitancy among MPC members. The pound has recently been gaining against the dollar, primarily due to dollar weakness, and could receive further support if the BOE provides a more hawkish outlook than the one expected in August. On the other hand, a large dissenting vote number could help convince the market of a cut at the August meeting and weaken the pound, particularly if the Fed signals a wait-and-see approach to lower its rates.

GBPUSD Tests Cup and Handle ‘Lip’

Cable fell to the lower 20-period VWAP at 1.3424 on Tuesday, breaking the ascending ‘autotrend’ trendline following the completion of a terminal wedge pattern. The drop retested the two peaks that formed in September 2024 and April 2025, which might have formed the ‘lip’ of a cup-and-handle pattern in the longer term. A potential bounce could open the door to the middle VWAP at 1.3530 and the ‘autotrend’ projection at 1.3609, with long-term trend projections past 1.40. A hawkish BOE may support prices moving past last week’s peak at 1.3635, exposing the 1.3650 and 1.37 round levels. However, further pressure stemming from an RSI-price divergence could send the pair towards the lower ‘autotrend’ level at 1.3155, contingent on weakness around 1.33 and the subsequent 1.32 psychological support.

Source: SpreadEx / GBPUSD

Key Takeaways

The BOE is expected to ‘hold’ at its Thursday meeting despite inflation falling last month, as the readings were only slightly lower than expected to warrant a rate cut. However, economists expect the BOE to reduce rates gradually throughout the year due to a slowing economy, with a majority expecting a rate cut in August unless the recent rise in oil costs increases inflationary pressure. A more hawkish outlook from the BOE would support the pound's recent strength against the dollar, while a large dissenting vote number could convince the market of an August rate cut and weaken the pound.