In a notable shift towards a more dovish monetary policy, the Bank of England (BoE) recently reduced its base interest rate by 0.25 percentage points, bringing it down to 4.5%. This decision, marking the third rate cut in six months, reflects the BoE’s growing concerns over the UK’s economic slowdown and its commitment to stimulating growth.
The Monetary Policy Committee (MPC) exhibited a dovish tilt, with seven members supporting the 0.25 percentage point reduction, while two members, Swati Dhingra and Catherine Mann, advocated for a more aggressive 0.5 percentage point cut. Mann’s vote was particularly surprising, given her previous hawkish stance against rate cuts.
The BoE’s revised economic projections underscore its dovish outlook. The growth forecast for 2025 has been halved from 1.5% to 0.75%, indicating heightened concerns about the UK’s economic momentum. Additionally, inflation is anticipated to peak at 3.7% in the third quarter of this year, nearly double the government’s target, before gradually declining.
Governor Andrew Bailey emphasized a cautious approach to future rate adjustments, stating that while further cuts are expected, the BoE will proceed “gradually and carefully” to ensure economic stability.
The dovish stance is further highlighted by the BoE’s acknowledgment of external risks, such as potential global trade tensions and rising energy costs, which could exacerbate economic challenges. This cautious outlook suggests that the BoE is prepared to implement additional rate cuts if necessary to support the economy.
This confirms my dovish view on GBP since the last year Autumn budget and I continue to be dovish on GBP. I would like to go short on GBPUSD but because of the swap fees I am reluctant to go as I am a swing trader. People who pay very less swap fee or no swap fee at all can think about going short on GBPUSD.
In summary, the BoE’s recent rate cut and its dovish policy shift reflect a strategic response to mounting economic challenges. By adopting a more accommodative monetary stance, the BoE aims to foster economic growth while remaining vigilant against potential inflationary pressures.
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