BoE Meeting Preview: Balance of inflation risks and growth concerns

Markets head into the Bank of England meeting expecting policymakers to keep interest rates unchanged, as the MPC continues to weigh cooling inflation against lingering domestic price pressures. With policy already firmly restrictive, the focus will be less on the decision itself and more on guidance, the vote split, and Governor Bailey’s tone.

UK inflation has eased meaningfully from its peak, but services inflation and wage growth remain elevated, leaving the BoE cautious about declaring victory. While headline inflation has shown improvement, underlying pressures continue to test policymakers’ resolve, reinforcing the Bank’s data-dependent stance.

The vote split in focus

As in recent meetings, the vote split will be closely watched. Markets will be alert to any increase in the number of members favouring a rate cut, which could signal that the MPC is edging closer to further easing. A shift toward a more divided committee would likely be interpreted as a dovish undercurrent, even if the headline decision remains unchanged.

Conversely, a broadly unified vote to hold rates steady would suggest the BoE remains uncomfortable with inflation dynamics, particularly in the labour market, and is willing to maintain restrictive policy for longer.

Sterling and financial conditions

Sterling strength presents a familiar dilemma for the BoE. While a firmer pound helps dampen imported inflation, it also tightens financial conditions at a time when UK growth remains fragile. Any acknowledgment that tighter financial conditions are helping to restrain inflation could be interpreted as a subtle easing signal, even without explicit forward guidance.

For GBP/USD, the balance of risks remains finely poised. A cautious or hawkish tone may keep sterling supported in the near term, while any softening in language, particularly around labour-market slack, could weigh on the currency. For now, the pair has found support around 1.3660 which has enabled a move back above 1.37 as the dollar faces renewed downside pressure.

GBP/USD daily chart

Past performance is not a reliable indicator of future results.

Looking ahead

The Bank of England continues to walk a narrow path between maintaining credibility on inflation and avoiding unnecessary damage to growth. This meeting is unlikely to deliver a clear policy pivot, but incremental changes in tone or voting dynamics may offer valuable clues about the timing of the first rate cut.

For now, patience remains the guiding principle, but markets are increasingly alert to signs that it may be wearing thin.