BoE Preview: set to hold at 4% as growth stalls and prices persist

The Bank of England’s September decision is unlikely to deliver fireworks. In contrast to the Federal Reserve, where attention is on the pace of future easing, the BoE faces a tougher mix of slow growth and still-elevated inflation. The most probable outcome is a hold, keeping Bank Rate at 4.0%, with language that recognises a weakening economy but offers little room to pre-commit to swift cuts.

Outlook remains shaky despite persistent inflation

The macro backdrop has softened again. July GDP was flat, and the three-month average slipped to 0.2%, underscoring how fragile the recovery remains. Much of the weakness stems from production and construction, while services continue to shoulder what little growth there is. This imbalance reinforces the sense that policy is restrictive even without fresh tightening: activity is subdued, but the inflation problem has not fully resolved.

Two important data releases arrive just ahead of the meeting: labour-market figures, released this morning, and CPI on Wednesday. Because they land within 24–48 hours of the vote, they are unlikely to swing the decision itself, but they will colour the tone of the statement and minutes. The labour market looks broadly stable rather than strong, with the unemployment rate holding unchanged at 4.7%.  Wages—particularly in services—have been the stickiest source of domestic inflation pressure, so the slight moderation from 5% to 4.8% may help the BoE’s confidence that price pressures from the labour market are on a durable path lower.

Inflation remains the awkward part of the story. Headline CPI near 3.8% is still well above the 2% target, and the persistence of services inflation keeps alive periodic worries about “stagflation”: stagnant growth alongside elevated prices. That combination argues for patience on policy—enough to lean against inflation, but not so much as to deepen the downturn.

Policy tweaks possible in the absence of rate cuts

Policy mechanics may offer the only scope for nuance. There is some chatter that the BoE could slow the pace of reducing its government-bond holdings—gilts accumulated during the pandemic—more as an operational tweak than a change in stance. A modest recalibration of quantitative tightening would aim to support market functioning without signalling a policy pivot.

Market pricing reflects this low-drama setup. Investors are effectively 98% convinced there will be no change this week, with only about 10 bps of easing priced between now and year-end. As of now, the first fully priced rate cut doesn’t arrive until March 2026. That’s a stark message when set against flat growth and stubborn inflation. It also creates a complacency risk: if the BoE sounds less relaxed about inflation—or less willing to hint at 2025 cuts—yields and sterling could pop, putting pressure on risk assets.

GBP outlook

Sterling has firmed over the past few sessions, helped by a softer US dollar and some support on the crosses. Near-term, GBP/USD will take its cues from the Fed’s tone and Wednesday’s UK CPI print. From a technical perspective, the pair has managed to break above resistance around 1.359–1.360; with a new focus on breaking the 1.37 area, while a dip back below 1.36 would keep recent ranges intact. Beyond the BoE, November’s Budget update looms as a medium-term driver for gilts and sterling as growth slows and fiscal headroom tightens.

GBP/USD daily chart

Past performance is not a reliable indicator of future results.

Bottom line: expect a straightforward hold at 4.0%. The message—not the move—could drive markets. With growth soft and inflation sticky, the BoE is in no position to promise swift easing. If the data cools meaningfully in wages and services inflation, the door to 2025 cuts can stay ajar; if not, the risk is that markets reassess a more protracted period of restrictive policy.