GBP/USD Forecast: Pound Sterling Advances after Hawkish BoE Rate Cut

Modified: Thursday, 18 December 2025 18:31 BST - Written by Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Advances after Hawkish BoE Rate Cut

The Pound to US Dollar exchange rate (GBP/USD) pushed higher on Thursday after the Bank of England (BoE) unveiled its latest monetary policy decision.

At the time of writing, GBP/USD was trading near $1.3419, up roughly 0.3% on the day.

The Pound (GBP) found support as markets reacted to a more measured tone from the Bank of England despite its decision to cut interest rates.

As widely expected, the BoE lowered borrowing costs by 25 basis points, taking the base rate to 3.75%.

The Monetary Policy Committee vote was narrowly split at 5–4 in favour of the cut, with Governor Andrew Bailey backing easing this time after opposing it at November’s meeting.

Policymakers also revised their inflation projections, now expecting price growth to slow more quickly and reach 3% in the first quarter of 2026.

Even so, the accompanying statement struck a relatively hawkish note, stressing that while rates are likely to drift lower over time, future decisions will be finely balanced. This signalled that the pace of further easing could be more gradual than some investors had anticipated, helping to underpin Sterling.

The US Dollar (USD) weakened on Thursday following the release of softer-than-expected US inflation data.

November’s consumer price index showed headline inflation easing from 3% to 2.7%, while core inflation cooled more sharply, falling from 3% to 2.6%.

The surprise slowdown in price pressures reinforced expectations that the Federal Reserve may deliver multiple interest rate cuts in 2026, weighing on demand for the US Dollar.

Pound-to-Dollar Forecast: Can Retail Sales Extend Sterling’s Gains?

Looking to the end of the week, the Pound to US Dollar exchange rate could find additional support from the UK’s latest retail sales figures due on Friday.

After a disappointing contraction in October, economists expect the start of the festive shopping season to have driven a rebound in consumer spending in November, potentially lending Sterling further support.

However, a weak reading during such a crucial period for retailers could revive concerns about household demand and place renewed pressure on the Pound.

In the US, the University of Michigan’s consumer sentiment survey may offer the Dollar some respite if December’s final reading confirms an improvement in confidence.

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TAGS: Pound Dollar Forecasts