The British Pound is declining against major currencies following a 25 basis point interest rate reduction by the Bank of England. While the cut was widely anticipated, the BOE emphasized a cautious approach to further reductions, leading to market expectations of additional cuts in the coming year. The dissent of two MPC members, including a surprising shift from Dr. Catherine Mann, a previous hawk, suggests a potential for more aggressive easing in the future.
The Pound Sterling (GBP) is trading on the defensive against most major currencies and UK 10-year government bonds are underperforming global peers. Yesterday, the Bank of England (BOE) reduced the policy rate 25 basis points to 4.50% (widely expected) and stressed there would be ‘a gradual and careful approach’ to the further rate cuts. Markets imply an additional 75 to 100 basis points of cuts over the next 12 months, BBH FX analysts note.
The Monetary Policy Committee (MPC) voted by a majority of 7–2 to cut rates. The two dissenting members, Swati Dhingra and Dr. Catherine Mann, preferred a 50 basis points cut. Dr. Mann was a staunch hawk on the MPC, so her policy stance change lowers the bar for more BOE easing.The BOE minutes highlight that for one of the two members that voted for a 50 basis points cut ‘a more activist approach at this meeting would give a clearer signal of financial conditions appropriate for the United Kingdom.’ Dr. Mann is an outspoken proponent of an activist monetary policy strategy. In the current economic cycle, this strategy implies keeping rates on hold for longer until there are clear signs the remaining persistence in inflation dissipates. Once inflation persistence has been purged, it would then be appropriate to ease fast and forcefully
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