Pound Sterling Rallies vs Euro and Dollar on Bank of England Vote Split

May 8, 2025 - Written by Frank Davies

STORY LINK Pound Sterling Rallies vs Euro and Dollar on Bank of England Vote Split

The Pound Sterling dipped immediately against the Euro, U.S. Dollar and other foreign currencies before the Bank of England (BoE) policy decision, but then rallied strongly following the actual announcement.

The Pound-to-Euro exchange rate traded up 0.33% at 1.17973, with the Pound-Dollar conversion jumping 0.27% to trade at 1.33269.

There was surprise that two members did not back a cut in interest rates at this meeting.

The cautious guidance on future rate cuts was also maintained while there had been speculation that there would be hints of faster rate cuts over the remainder of 2025.

The expected UK-US trade deal also offered some underlying Pound support.

After sliding to below 1.3250 ahead of the announcement, the Pound to Dollar (GBP/USD) exchange rate rallied to 1.3325.

Key GBP/USD resistance remains at 1.3450.


The Pound to Euro (GBP/EUR) exchange rate advanced to 1.1800 after a brief dip below 1.1750.

According to ING; “a less dovish than expected BoE today could drive EUR/GBP to the 0.8435/40 area. (Gains to 1.1850 for GBP/EUR)

The BoE Monetary Policy Committee (MPC) cut interest rates by 25 basis points to 4.25% which was in line with very strong consensus forecasts.

There was, however, an unexpectedly narrow 5-4 vote the policy decision.

Dhingra and Taylor preferred to reduce rates by 50 basis points to 4.00% while Mann and Chief Economist Pill voted to leave rates unchanged at 4.50%.

Investec Chief Economist Philip Shaw commented on two members not backing a rate cut; "That may reduce speculation as to a possible back-to-back reduction at next month’s meeting. Our base line case remains that we will see the next cut in August."

According to the statement; “a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”


Governor Bailey commented; “Inflation pressures are easing so we were able to cut rates today. He added that past weeks have shown unpredictability in the global economy so we need to stick to a gradual and careful path.”

He reiterated that policy was not on auto-pilot.

Following the decision, markets pared rate expectations slightly with two further cuts expected over the remainder of 2025. The chances of a June cut dipped to around 20% from over 50% ahead of the decision.

The 2025 GDP growth forecast was increased slightly to 1.0% from 0.75% previously after a firm first quarter figure, but the 2026 forecast was lowered to 1.25% from 1.50% previously.

The bank warned that prospects for global growth have weakened due to tariffs uncertainty.

The 1-year inflation forecast was cut to 2.4% from 3.0% previously with the peak at 3.5% from 3.75% previously, but no change in the 3-year forecast at 1.9%.

According to the bank, progress on domestic disinflation is generally continuing and pay growth is expected to slow significantly over the remainder of 2025.

The majority stated that the case for a reduction in Bank Rate at this meeting had been fairly clear. Underlying domestic disinflation was progressing as expected and monetary policy restrictiveness was bearing down on activity.

The two dovish members warned over weakness in the economy while the two hawkish members were uneasy over inflation trends.

Aberdeen Deputy Chief Economist Luke Bartholomew commented; "The Monetary Policy Committee is clearly very divided on how policy should respond to the many shocks currently hitting the economy."

He added; "This is highly unusual and will make it hard for the Bank to send a clear signal to the market about the likely path of policy. But with the bank maintaining its guidance that further cuts will be 'gradual and careful', the chance of another cut in June probably have fallen significantly."

MUFG commented; “the pound will derive more support if the BoE continues to signal that they remain comfortable with the current quarterly pace of rate cuts, and financial market volatility continues to ease encouraged by building investor optimism over a trade deal between the US and US.”

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts