The Bank of England is wrapping up G10 central bank meetings this week. Although it has cut interest rates every three months this year, no change is expected this time. Ongoing worries about inflation have changed expectations since August.

Interest Rate Expectations

Even though inflation is slightly lower than expected, a rate cut now seems unlikely. The upcoming budget adds extra risks, and the market sees only a 25% chance of any adjustment in interest rates. The meeting will share new forecasts that reveal the Bank’s outlook on inflation. Voting has been unpredictable this year, making it hard to guess how the pound will react. Even if rates stay the same, the market’s view of the forecasts and discussions can still influence the currency, particularly if any delays in cuts are anticipated. This uncertainty highlights how difficult it is to predict economic trends when future rate changes are possible. Today, the Bank of England is expected to keep interest rates steady, breaking the trend of quarterly cuts from 2025. The latest data from the Office for National Statistics shows UK inflation at 3.1% in October, still above the Bank’s 2% target. This ongoing inflation is prompting officials to pause and reconsider before easing further. The market has already priced in this pause, with a less than 25% chance of a rate cut today. For traders, the key will be the details, especially the Monetary Policy Committee’s vote split and the Bank’s fresh inflation forecasts. A close vote, like 5-4 to hold, would suggest a cut may just be postponed until the December meeting.

Market Considerations and Historical Precedents

This uncertainty suggests focusing on volatility instead of a clear direction for the pound right now. Strategies like straddles might be effective to capture significant price swings. The pound could drop even with a “no cut” decision if the accompanying statements are overly cautious. In the next few weeks, attention will turn to short-dated sterling futures to assess confidence in a December move. We should also consider the upcoming Autumn Budget, which adds another layer of risk and explains the Bank’s cautious approach. A similar situation occurred with the US Federal Reserve in 2024, which held rates steady until there was clear evidence that inflation was under control. This historical context suggests the Bank of England will take its time, making wage and service-sector data in the next few weeks extremely important. Create your live VT Markets account and start trading now.

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