BoE to Hold Rates at 4.75%? What It Means for GBP/USD Analysis

The Bank of England (BOE) is expected to keep rates on hold at 4.75% on December 19, after a year where they didn’t cut as much as expected.

They were forecast to cut 6 times in 2024 but only cut 2 times in August and November, prioritising inflation over stimulus.

Governor Andrew Bailey has hinted at 4 cuts in 2025 but the market is sceptical after last year’s mistakes and is pricing in 3 cuts, starting in February. Inflation is still a problem, 2.6% in November, just above the 2.4% target.

Economic Challenges Cloud BOE’s Outlook

The UK economy is in a tough spot after the Labour government’s October budget, with a £26 billion tax on employers and a big minimum wage increase. Business and consumer confidence is weakening, making it harder for the BOE to balance inflation with growth.

• Inflation Risks: Energy price increases and sticky services inflation at 5.1% will make it harder for the BOE to ease policy.

• Labour Market Woes: Wage growth is expected to hit 5%, well above the BOE’s 3% target for 2% inflation.

• Different Policies: The BOE is behind the European Central Bank and Federal Reserve which have cut rates 4 and 2 times respectively this year.

The BOE’s slow easing of policy is causing currency market moves. This week the GBP/EUR hit an 8 year high and gilt yields diverged sharply from German bonds.

GBP/USD: Bearish Momentum Continues

The GBP/USD pair trades at $1.2585, having broken below key support at $1.2635. Immediate support lies at $1.2573, with further downside risks toward $1.2525. Resistance levels are at $1.2635, $1.2673, and the 50 EMA at $1.2704.

Key technical indicators point to continued bearish sentiment:

• RSI at 33.35: Oversold conditions may limit short-term downside but do not signal a reversal.

• 50 EMA: Bearish alignment suggests strong resistance at higher levels.

While the pound faces near-term pressures, its trajectory depends on clarity from the BOE and improved economic data.

Key Takeaways:

• The BOE is expected to hold rates at 4.75%, with cuts likely in February.

• GBP/USD remains under pressure, testing support at $1.2573.

• Inflation risks and labor market challenges complicate the BOE’s path forward.

ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

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