The Bank of England plans to lower interest rates every quarter until the third quarter of 2026.Each cut will be 25 basis points, bringing the Bank Rate down to 3.0% by then. The UK’s slowing job market and signs of decreasing inflation may lead to these cuts. The pound is likely to weaken against the euro due to lower UK rates. However, its drop against the US dollar might not be as severe because of ongoing uncertainty in Washington.

Weakening Of The British Pound

The British Pound is expected to weaken against both the Euro and the US Dollar. The Bank of England is likely to keep cutting rates, with another decrease expected each quarter. The recent cut, which lowered the Bank Rate to 4.75%, is just another step toward reaching 3.0%. This expectation is backed by UK economic data showing ongoing disinflation. According to the latest report from the Office for National Statistics for July 2025, the consumer price index (CPI) dropped to 3.2%, falling more than analysts predicted. As unemployment rises to 4.5%, the Bank of England has reasons to continue easing its policies. For traders using derivatives, the EUR/GBP cross is the easiest way to prepare for a falling pound. The European Central Bank has kept its interest rates steady, due to stubborn inflation in services, creating an advantage for the Euro. Strategies like buying EUR/GBP call options or selling GBP futures against the Euro could be effective in the coming weeks.

Outlook Against The US Dollar

The pound’s outlook against the US dollar is more complex and requires a cautious strategy. Ongoing policy uncertainty in Washington, especially with the midterm elections approaching, may limit how strong the dollar can get. Traders might want to consider bear put spreads on GBP/USD to manage risk while anticipating a slight decline. This situation resembles the Bank of England’s actions during the 2008-2009 financial crisis, when rapid cuts led to sustained weakness in the pound. In the coming weeks, any short-term recovery in the pound should be viewed as an opportunity to take new bearish positions. The downward pressure is expected to increase with each new set of economic data. Create your live VT Markets account and start trading now.

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