As expected, the Bank of England offered a 25bp cut this lunchtime, the second of this cycle, resulting in Bank Rate now sitting at 4.75%.

Unlike the first cut of this cycle, in August, which was a finely balanced decision among MPC members, things were much simpler this time.

Of the 9 MPC members, 8 policymakers voted in favor of such a reduction, with only external member Mann dissenting in favor of keeping rates constant. Importantly, the split vote means that the “core” MPC – the governor, his deputies and the chief economist – are also now all aligned on the appropriate course of monetary policy.

In the policy statement, the MPC reiterated that it will continue to take a meeting-by-meeting approach to future policy decisions, including a phased approach to removing policy restrictions, the stance of which must remain “restrictive long enough” to ensure- you that inflationary pressures are adequately removed from the economy.

Accompanying the policy decision were the Bank’s latest economic forecasts. Perhaps taking into account last week’s expansionary budget, as well as a more accommodative rate path implied by the market at the time of forecasting, the inflation profile has been revised higher.

Headline CPI is now seen at 2.2% in the last quarter of 2026, before falling to 1.8% in 2027. With this forecast conditional on the path of the market-based rate, the BoE is implicitly signaling to financial markets that too much of policy relaxation is currently valued in.

Overall, despite expectations that the Bank could accelerate the pace of policy normalization in Q4, the recent uncertainty over the inflation outlook caused by Chancellor Reeves’ expansionary budget last week is likely to see the “Old Lady” continue to plot. a relatively cautious course, at least for now. As such, today’s bank rate cut is likely to be the last of the year as the MPC continues to pay close attention to incoming data, focusing in particular on the persistence of underlying price pressures within the economy.

The next Bank Rate cut of 25 basis points, therefore, is likely to take place in February, along with updated forecasts. If, at this stage, policymakers have more confidence in the disinflationary path being well embedded, the pace of normalization could accelerate by early 2025. However, quarterly cuts remain the baseline for now.

While this outlook is somewhat more hawkish than that of other G10 central banks such as the FOMC and ECB, the policy divergence is unlikely to be enough to convincingly support the GBP. This is especially the case if, as at present, the currency market remains squarely focused on relative growth dynamics, where the UK’s anemic economic outlook puts sterling at a substantial disadvantage against its peers – especially given the economic outperformance continued US, a very strong theme. likely to persist into the second Trump administration.