The British pound remains firm just below the key resistance level of 1.3600 against the US dollar. Analysts at Brown Brothers Harriman (BBH) report that UK inflation expectations stayed steady in May, signaling cautious sentiment around monetary policy.
The Bank of England’s (BOE) Decision Maker Panel (DMP) survey showed that one-year inflation expectations dropped slightly to 3.0% in May, down from 3.1% in April and below the consensus forecast of 3.2%.
Three-year expectations held steady at 2.7%, marking a second month at this level. Although these figures remain above their October 2024 lows of 2.5%, they suggest the BOE will continue a careful approach to easing monetary policy.
Market expectations indicate the BOE will likely pause its rate cuts at the upcoming June 19 meeting. However, the swaps market still prices in about 60 basis points of rate cuts over the next year, with the policy rate expected to bottom out between 3.50% and 3.75%.
The UK’s Office for National Statistics (ONS) recently revised April’s Consumer Price Index (CPI) down by 0.1 percentage points to 3.4% year-on-year, aligning with the BOE’s forecast and slightly below the initial 3.5% figure. This revision is not expected to significantly affect rate cut expectations.
Last month, the BOE reduced its policy rate by 25 basis points to 4.25%, with a close 5-4 vote among Monetary Policy Committee members.
The split vote and minor economic outlook adjustments suggest back-to-back rate cuts are unlikely, reinforcing the BOE’s guidance for a gradual and cautious easing path.
Overall, the BOE remains vigilant amid mixed economic signals, balancing inflation trends and growth prospects while maintaining a steady course in monetary policy.
