BoE Preview: Here are the Key Pound Sterling Forecasts

May 7, 2025 - Written by David Woodsmith

STORY LINK BoE Preview: Here are the Key Pound Sterling Forecasts

The Bank of England (BoE) Monetary Policy Committee (MPC) will announce its policy decision on Thursday.

Market expectations for future rate cuts will be crucial for the Pound’s reaction.

According to MUFG; “A more dovish policy update from the BoE poses downside risks for the GBP and could deliver a setback after the recent rebound.”

Danske expects GBP/EUR will lose ground; “We expect markets to react by sending UK yields lower and EUR/GBP higher on the dovish twist to the BoE's communication.”

In contrast, ING does not expect significant changes to guidance; “We therefore have a bias that GBP/USD trades back to the 1.3445 high over the next couple of days.”

- There are very strong expectations that rates will be cut by 25 basis points to 4.25%.

- The bank will also release the latest Monetary Policy Report (MPR) with updated inflation and growth forecasts.


- Governor Bailey will hold a press conference after the decision.

- More than 1 vote for a 50 basis-point cut would hurt the Pound.

The Pound will also be vulnerable if the BoE signals more aggressive future rate cuts.

Sterling can gain if cautious guidance is maintained.

Assuming a 25 basis-point cut, the vote split will be the first focus of attention.

There is a small possibility that a member will vote against a rate cut, but the more likely outcome is that there will be an element of dovish dissent with at least one member voting for a larger 50 basis-point cut.

According to Danske Bank; “We expect the vote split to be 8-1 with the majority voting for a 25bp cut and dove Dhingra voting for a larger 50bp cut.”


ING took a similar view; “Elevated uncertainty and subsequent weakness in survey data suggest another 25bp rate cut is a no-brainer. We expect an 8-1 vote in favour, with arch-dove Swati Dhingra voting for a larger 50bp move, just as she did in February.”

Commerzbank expects a 7-2 vote with two members backing a larger cut.

There will be speculation that the bank could sanction a larger 50 basis-point cut.

According to Morgan Stanley; “The intellectual reasoning underpinning a potential 50bp [basis point] cut is fairly simple: why does the UK economy, with a weak labour market, pay settlement surveys at close to target-consistent levels and in anticipation of a possible large-scale global growth hit, need interest rates as elevated as 4.5%?”

It added; “We do strongly feel that the BoE should cut rates to closer to 3.5%, the sooner, the better.”

MUFG commented; “One can’t completely rule out a larger 50bps although that appears unlikely to us.”

Updated MPR forecasts will be very important. A downgrading of inflation and growth forecasts would increase pressure for more aggressive interest rate cuts.

According to Commerzbank; “An aggressive revision towards lower inflation and growth would also pave the way for a much more exciting change.”

Guidance within the statement and from Governor Bailey will be a key focus. In particular, any hints over the scope for future cuts will be extremely important.

ING and Danske Bank expect the same decision, but Danske expects a weaker Pound on dovish guidance while ING sees a firm Pound amid no significant change in guidance.

The bank faces major uncertainty over the domestic economic outlook as well as important ramifications from US trade tariffs.

There will inevitably be an impact on both inflation and growth.

The bank has suggested in recent comments that tariffs will act as a deflationary shock. A downgrading of growth forecasts and a recession warning would hurt the Pound.

According to Danske; “Inflation has surprised to the downside and with energy prices moving lower since the February meeting, the inflation forecast will likely be revised downwards.”

Capital Economics deputy UK economist Ruth Gregory, commented on inflation; “It may forecast a slightly lower peak, but there’s still a risk there that there could be second round effects that inflation could linger for a bit longer in the near term.”

ING notes lower oil prices, but remains wary over wider pressures; “services inflation is still an issue. At 4.7%, it is 0.2pp below where the Bank had predicted in its February forecasts, but it has been bouncing around 5% for some time now. And that’s much too high.”

According to MUFG; “we expect the updated inflation projections to be lowered for the coming years. It should create more room for the BoE to keep lowering rates.”

There has been considerable speculation over a shift to more dovish guidance with a focus on recent guidance that rate cuts will be careful and gradual.

According to Oxford Economics’ Andrew Goodwin; “If they change those two words, if they knock one out or if they change one to another word, then that is probably a sign that they’re trying to signal something.”

Commerzbank added; “If the BoE does indeed remove the reference to gradual rate cuts from its statement, this would increase the scope for faster (and larger) rate cuts than previously expected - taking away one of the pound's few remaining supporting arguments.”

Capital Economics’ Gregory, commented; “I think there may be some wording in the policy statement that it may want to wait for greater clarity about the influence of the trade war on inflation and it probably won’t drop its existing guidance that rate cuts will be gradual and careful.”

According to Danske; “Removing the notion of a "gradual" cutting cycle would be a strong signal of the MPC considering consecutive cuts.

MUFG expects the bank will keep options open; “The BoE could also indicate that that risk assessment to meeting their inflation target has shifted to the downside although they are likely to be wary of providing strong guidance while uncertainty over the outlook remains so elevated.”

ING expects no change in guidance; “Bank to reiterate that future cuts are likely to be "gradual and careful".

After a May cut, markets are pricing in at least two further cuts by September and the shift in pricing after the decision will be crucial.

MUFG commented; “The UK rate market has already moved to price in around 40bps of BoE cuts by the June MPC meeting highlighting that there is already a strong expectation that the BoE will signal a faster pace of easing going forward.”

It added; “The dovish repricing that has already taken place should help to dampen a GBP sell-off on the back of a change in guidance next week form the BoE unless those expectations are reinforced further by discussions over delivering a larger 50bps cut if needed.”

According to ING; “We don’t think the Bank will move quite as quickly in the short term.”

Despite initial caution, ING does expect an extended rate-cutting cycle; “We think Bank Rate will fall to 3.25% by mid-2026 and possibly even a little lower than that.”

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TAGS: Pound Sterling Forecasts