STERLING spiked surprisingly after today’s Bank of England rate decision, as a combination of a hawkish 5-4 vote count and the Bank of England saying headline inflation is now expected to fall back quicker than previously thought, suggested a more gradual pace of cuts next year than markets had priced in.
Five members (Andrew Bailey, Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor) voted in favour of the proposition. Four members (Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill) voted against the proposition, preferring to maintain Bank Rate at 4%.
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said: “As widely expected, the Bank of England cut the base rate today by 0.25% to 3.75%.
“But the surprise was that, far from being unanimous, we had a second 5-4 vote by the Monetary Policy Committee, but this time with four members voting to leave UK interest rates unchanged. This hawkish cut signals a more gradual pace of cuts in 2026 than markets had priced in.
“It was good news for Pound sellers as Sterling immediately jumped 0.24% against the Euro on the announcement and recovered its morning losses against the Dollar.
“That being said, 2026 will remain a very difficult year for both the UK economy and the Pound but thanks to ‘Santa’ Andrew Bailey, we have a rare ray of sunshine for the Pound at the time of writing.
“A hawkish vote count has prevented Sterling from entering free fall.”
Prem Raja, Head of Trading Floor at Currencies 4 You, agreed: “After the Bank of England announced a 25bps cut, the Pound actually reacted positively and erased previous losses over the past 24 hours.
“The reason for this is partly that the cut was already priced in, but also due to the fact that the Bank of England believe the UK will be back to 2% inflation by April. That is a positive for the economy and helps with a more upbeat outlook overall for the Pound.
“However, I do not believe this will be a trend shift and gains should be taken advantage of. I cannot envision a massive Sterling rally just yet.”
