The governor of the Bank of England, Andrew Bailey, highlighted the need for a careful approach to changing monetary policy. Any future easing of monetary restrictions will depend on inflation trends. Recent price increases might lead to higher inflation. While interest rates are generally expected to fall, the exact neutral rate is still unclear. Bailey’s overall position on the rate path hasn’t changed, though the timeline is uncertain. The Bank did not specifically address the risks of recession, and their outlook has mostly stayed the same since May. Bailey plans to share more details in an upcoming Treasury Select Committee meeting. Food prices are projected to rise further, according to Lombardelli.

Bank Rate Vote

The latest bank rate vote had to be conducted in two rounds due to different views on the size of rate cuts. Five members supported a cut, while four, including Lombardelli, opposed it unexpectedly. This indicates that the Bank of England might pause rate cuts in September, with November decisions relying on upcoming UK data. From the Bank of England’s comments, we should anticipate a pause in rate cuts during the September meeting. The market may have acted too early, but the cautious tone and the tight 5-4 vote for the last cut indicate a hesitation to move too quickly. As a result, the path for interest rates will be less steep than many expected. Recent data from the ONS backs up this cautious approach. Although the headline CPI for July 2025 dropped to 2.3%, core inflation, which leaves out volatile items, stayed at 3.5%, and services inflation even increased. Additionally, average weekly earnings data released last week for the quarter ending in June showed unexpectedly strong wage growth at 4.8%, raising fears of ongoing domestic price pressures. For traders, this implies that the pricing of aggressive cuts for autumn is out of sync. Selling short-sterling or SONIA futures contracts for September and November seems like a sensible move. We are effectively betting that the Bank of England will keep rates steady longer than the market predicts.

Market Implications and Trading Strategies

This unexpected hawkish stance should also support the pound. As the Federal Reserve has already implemented more cuts this year, the interest rate gap is shifting in favor of sterling. We see a chance to go long on GBP/USD, as the BOE’s pause contrasts with a more dovish outlook elsewhere. The mention of “genuine uncertainty” indicates increased volatility around important UK data releases and BOE meetings. Buying options, like straddles on SONIA futures, could be an effective way to navigate this uncertainty without choosing a specific direction. This strategy could profit if rates move significantly up or down as the market reacts to new information in the coming months. In contrast to the aggressive interest rate hikes in 2023 and the earlier confident rate cuts this year, this period feels different. The split vote, particularly with Lombardelli’s unexpected opposition to a larger cut, reflects significant divisions within the committee. This internal disagreement is the main source of market uncertainty and will make upcoming inflation and job reports very important. Create your live VT Markets account and start trading now.

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