BoE Rate Cut Spurs Sterling Rally Amid Policy Split

Sterling surged following the Bank of England's (BoE) recent 25 basis point rate cut to 4.00%, a move accompanied by an unusually close vote split with four of nine policymakers opposing the cut due to inflation concerns. This hawkish stance suggests the BoE's easing cycle may be slowing, with future cuts becoming less certain, especially given inflation is expected to peak around 4%, double the BoE's target. Governor Andrew Bailey emphasized the uncertainty of the policy path, warning against cutting rates too quickly due to inflationary pressures from energy and food prices. Market reactions included a strengthening pound against the dollar and euro, and a reassessment of expectations for further easing, with September cuts largely ruled out and November cuts uncertain. Additionally, economic concerns persist, including a downgraded UK growth forecast and potential fiscal tightening with expected tax increases to address public finances. The broader currency context features a relatively hawkish European Central Bank outlook and geopolitical developments influencing euro movements, including ongoing Ukraine peace talks and planned meetings between President Trump and Russian President Putin.