BoE Decision Triggers GBP Weakness Despite Hawkish Expectations

The Bank of England (BoE) has decided to keep the Bank Rate unchanged at 3.75% with a 6-3 vote, disappointing hawkish market expectations and triggering weakness in the British Pound.

Danske Bank's Research Team notes that the decision was broadly as expected, but given the very hawkish market pricing going into the meeting, the outcome led to some GBP weakness and lower rates.

The Quantitative Tightening (QT) announcement was also close to expectations, with the remaining stock set to be unwound at an annual average pace of GBP 46bn by the end of 2034.

The Monetary Policy Committee (MPC) acknowledged that upside risks to the inflation outlook have increased since July but stressed that uncertainty remains very high. Danske Bank maintains its call for unchanged Bank Rate this year and a rate cut in June, with an increasing risk of a hike in Q4.