Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, said monetary policy should stay steady until the UK central bank has enough information. She spoke during European trading hours on Thursday and said it is not wise to act before that. Breeden said current conditions differ from the 2022 energy shock. She said firms and workers are likely to have less price and wage bargaining power, so second-round effects are less likely.

Policy Patience Until Clearer Data

She said the Bank will know more about the balance of risks, and the scale and duration of the shock, by the April meeting. She added that even with higher borrowing costs, she does not expect a bust in borrowing because there was no boom before. Markets showed no immediate reaction in Sterling after the comments. At the time of reporting, GBP/USD was marginally lower at around 1.3355. The Bank of England targets inflation of 2% and uses the base lending rate to influence borrowing costs and wider interest rates. Higher rates can support the Pound, while lower rates can weaken it. Quantitative easing (QE) involves creating money to buy assets and tends to weaken Sterling. Quantitative tightening (QT) involves stopping bond purchases and reinvestments and is usually supportive for Sterling.

Sterling Outlook And Trading Implications

The Bank of England’s message is to remain steady, suggesting the current Bank Rate of 5.25% will be held until there is more clarity. With the latest ONS data showing February’s CPI held at a sticky 2.8% and Q4 2025 growth being revised down to a flat 0.0%, the bank is clearly in a wait-and-see mode. This indicates that policy will be driven by incoming data over the next few weeks, not by a predetermined path. We see this stance reflecting a belief that the wage-price spiral risks seen in 2023 have subsided, giving policymakers more breathing room. Looking back, the aggressive tightening cycle was a response to that shock, but conditions are now different. With UK wage growth having eased from over 6% last year to a more manageable 4.5%, the concern over second-round inflation effects is lessening. This suggests that derivatives pricing in aggressive rate cuts before the summer may be vulnerable to a correction. Traders could consider selling near-term Sterling Overnight Index Average (SONIA) futures contracts, betting that the market is too optimistic about the timing of the first cut. The Bank’s cautious approach implies short-term rates will remain higher for longer than many currently expect. For the Pound, this cautious tone could provide a floor against further declines, especially as other central banks signal a stronger desire to ease policy. We believe using options to express a view on Sterling is prudent, such as buying short-dated GBP/USD call options ahead of the April meeting. This strategy provides upside exposure if the Bank maintains its steady hand, while limiting downside risk. The primary takeaway for us is that volatility in Sterling is likely to remain elevated, especially around key data releases like the next inflation report. The stated focus on waiting for “sufficient information” makes the April meeting a critical event for the market. This environment is favorable for traders who can use options strategies, like straddles, to profit from a significant price move in either direction. Create your live VT Markets account and start trading now.

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