Research shows that inflation is sticking around while growth expectations are weak, making it tough for policymakers. Inflation still poses risks, indicating a stricter approach may be needed than what the market expects. Keeping the Bank Rate high is seen as necessary to combat inflation. However, if domestic demand takes a hit, we could see swift Bank Rate cuts.

Current Market Conditions

Currently, GBPUSD is trading between the 100-hour and 200-hour moving averages, at 1.34624 and 1.34944, respectively. The price is slightly up today but stays within these ranges, showing a neutral technical view. As of August 26, 2025, the UK faces a challenging mix of stubborn inflation and weak growth. The latest CPI data from July 2025 shows inflation at 3.1%, still above the 2% target, raising concerns about price pressures. This suggests that the Bank of England will not rush to cut interest rates. The main point is that monetary policy could end up being much stricter than the market currently believes. While GDP growth was flat at just 0.1% last quarter, inflation risk remains the primary focus. This implies that any expectations for a rate cut before the year’s end may need reassessment.

Monetary Policy Outlook

This uncertainty around policy is keeping GBPUSD in a steady trading range between 1.3460 and 1.3490. For traders, this situation points to strategies that can profit from either low volatility or a sudden price movement. The market’s current uncertainty mirrors the central bank’s own challenges. While the key message is to keep interest rates “higher for longer,” there’s also the potential for quick cuts if the economy sharply declines. This introduces a two-sided risk; any unexpectedly weak retail or employment data could lead to a swift change in outlook. Traders should prepare for increased volatility around these crucial data points. Reflecting on the high inflation of 2022 and 2023, it’s clear that policymakers want to avoid easing measures too early this time. Therefore, keeping a tight policy is likely the best approach for now. This suggests that bets on a significant rise in UK gilts or a continued drop in the pound face serious obstacles. Create your live VT Markets account and start trading now.

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