Pound Sterling Spikes Against Euro and Dollar on Bank of England Cut

Modified: Thursday, 7 August 2025 13:39 BST - Written by Frank Davies

STORY LINK Pound Sterling Spikes Against Euro and Dollar on Bank of England Cut

The British Pound Sterling (GBP) spiked higher against the Euro (EUR) and US Dollar (USD) in immediate reaction to the Bank of England (BoE) rate decision. Although markets had backed a cut, the stronger-than-expected opposition, as well as higher inflation forecasts, triggered Pound Sterling buying.

The Pound to Dollar exchange rate (GBP/USD) jumped to 10-day highs at 1.3425 from 1.3375 ahead of the decision while the Pound to Euro (GBP/EUR) exchange rate strengthened to 1.1520 from just above 1.1460.

The Monetary Policy Committee (MPC) cut interest rates by 25 basis points to 4.00% at the latest policy meeting in line with strong consensus forecasts.

As far as the vote is concerned, there was an initial 4-4-1split with four members voting for a 25 basis-point cut while four wanted no change and Taylor voted for a larger 50 basis-point cut.

There was a 5-4 decision on the second vote as Taylor opted to back a 25 basis-point cut.

Chief economist Pill, alongside Mann, Greene and Lombardelli backed no change in rates at this meeting.

Governor Bailey commented that the August decision was finely balanced and that and future rate cuts would need to be made gradually and carefully.


As far as inflation is concerned, the bank now expects a peak of 4.0% in September from 3.7% previously and the 1-year inflation forecast has been increased to 2.7% from 2.4% given the impact of National Insurance hikes and global pressures.

Following the updated forecasts and vote split, markets trimmed expectations of further action and are not fully pricing in a further cut this year.

Rob Wood, Chief UK Economist at Pantheon Macroeconomics, said the Bank of England’s August decision delivered a hawkish surprise, despite the expected 25bp cut to 4.00%. The tone of the minutes and updated forecasts suggests the MPC is now less inclined to cut further this year.

“We’re comfortable assuming the MPC on hold for the rest of this year after hawkish guidance changes and vote,” Wood noted.

The decision was finely balanced, with five members voting for a cut and four for no change—a tighter outcome than markets anticipated. Wood flagged the shift in guidance and upward revisions to inflation forecasts as key reasons for the change in tone.

“The MPC were less dovish than the market expected, leaving another rate cut this year in the balance.”

“Rate setters wanted to tamp down market eagerness to price quarterly rate cuts. They have shifted the focus to inflation… and reiterated their guidance of a careful and gradual approach.”


The Bank’s own inflation forecast now sees CPI peaking at 4.0% in September and remaining higher than previously expected through 2025.

“We are comfortable to retain our call of no more rate cuts this year.”

Pantheon also highlighted growing MPC concerns that policy may no longer be restrictive, with some indicators now suggesting rates are close to neutral.

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts