Bank of England expected to reduce rates in face of sluggish UK economy

• The Bank of England is expected to lower its policy rate by 4.25%.
• UK inflation numbers remain well above BOE's goal.
• GBP/USD retreats from recent peaks, walking around the 1.3300 zone.

The Bank of England (BOE) announced the latest financial policy decision on Thursday on what was marked by the third rate-setting meeting of 2025.

Markets are widely expected that the Central Bank will reduce the Benchmark's interest rate by 25 basis points to 4.25% after staying on the sideways at the gathering of March 20.

The Monetary Policy Committee (MPC) decision will be accompanied by the minutes of the meeting and the financial policy report (MPR), which offers a window in the internal debate, while Governor Andrew Bailey will meet journalists at a post-decision conference. His comments will be evaluated for any tone transfer, especially around inflation risks, the potential of tariffs, and the likely timing of cuts in the rate of future.

By the rate of transition mainly priced at, the focus is now changing the ongoing bank guidance and the updated economic perspective -key signals that can shape expectations over the next few months.

UK Economic Outlook: Sticky Inflation, Tariffs, Subdued Growth

The Bank of England will hold interest rates that are stable in March, as widely expected, along with eight members of the financial policy committee vote to maintain the benchmark rate. Swati Dhingra is the solitary dissenter, who supports a 25-base-point cut in a nod to develop disinflationary pressure.

The decision came next to fresh inflation data that surprised the downside. Figures from the Office for National Statistics (ons) showed CPI's annual headline to avoid 2.6% in March, down from 2.8% last month. The main inflation, which releases a change of food and energy prices, also refused, falling to 3.4% -an additional signal that the underlying price pressure gradually retreats.

Markets respond by firing their bets on rate cuts. Today's interest rate futures are fully price at 100 basis of easing points by the end of the year, equivalent to four quarter-point cuts, partly from 94 basis of points last week.

BOE officers are increasingly pointing to external risks as a factor in their view. Some policy manufacturers have mentioned that the recent tariffs announced by US President Donald Trump may have a disinflationary impact on the UK. Governor Andrew Bailey, who speaks during spring meetings of the International Monetary Fund, has warned that increasing trade tensions can be weighed in global growth.

The IMF shouted concerns as it cut off 2025 forecast growth for the UK up to 1.1%, down from 1.6%, strengthening the case for a sluggish bearing from the middle bank in the early months.

That said, entrepreneurs will watch Bailey's press conference for any signal whether Boe is preparing to speed up its rate cycle in the face of softening inflation and global uncertainty.

How will the BOE's interest rate decision affect GBP/USD?

Investors are bracing for BOE to lower its benchmark rate to 4.25% on Thursday at 11:02 GMT. The interest rate decision was slightly delayed in the national two minutes of silence to commemorate the 80th anniversary of European victory.

While the decision itself is largely priced, attention will be centered on the vote split within the MPC and comments from Governor Andrew Bailey for clues to the Policy Path path.

By firmly set, the British pound may present a masked reaction to the rate announcement but may move the direction depending on how the tone is proven.

In the lead-up to the meeting, the GBP/USD appears to have begun at an integrated phase around the 1.3300 region, driven more than a dynamic US dollar (USD) and transferring sentiment around US trade policy than domestic catalysts.

“The cable was subjected to a modified downside pressure after hitting more than three years of top around 1.3440 on April 28, although it seemed to encounter some decent disputes near 1.3260 to date,” said Pablo Piovano, senior analyst at FXSTRETEIVE. He added that a clear break above 2025 high could provide a way for a move to 2022 climax at 1.3748 reached on January 13.

On the downside, Piovano taught the 200-day simple Moving Average (SMA) to 1.2849 as the main support, followed by the temporary 100-day SMA at 1.2744, which preceded the floor of April 1.2707 (April 7). “If the sale of pressure develops, the deeper support lies in the weekly troughs of 1.2558 (February 28) and 1.2332 (February 11),” he said.

(This story was corrected on May 8 at 06:38 GMT to say that the decision would be announced at 11:02 GMT, not 11:00 gmt, due to a last minute change in timing from Boe.)