The consensus among economists is unanimous that the BOE will cut interest rates by 25 bps on Thursday. But analysts expect the vote split to be razor-thin, meaning that markets will likely react to the outlook. Economists and the market are expecting one more rate cut in the first quarter of 2026. But the timing will likely be pivotal for how the market reacts.

It appears that the Autumn Budget has cleared the way for the BOE to resume its easing, but there is still a considerable amount of uncertainty about the future rate trajectory. The jobs market is showing increasing weakness, but inflation is still well above target. That puts the BOE in a difficult position. Add to that the recent disappointment with economic growth figures, and there is a substantial risk of volatility in the pound, particularly if the BOE delivers a surprise.
 

Will Inflation Improve Enough to Justify a Cut?

Ahead of the BOE’s decision, the latest UK CPI figures are set to be released on Wednesday. That could shake up market expectations if the data comes in outside expectations. The main reason given for holding off on a rate cut is persistently high inflation. But, if consumer prices continue to decelerate, it could be enough to resume rate cuts.

The consensus is that UK November inflation will decline to 3.4% from 3.6% a month earlier. A the same time, core inflation is also expected to decline to 3.3% from 3.4%. With the market expecting further BOE easing, a miss on the number might not have as significant a downward impact as a beat.
 

5-4 Vote Could Offer Surprises

The last meeting was a narrow 5-4 vote to hold, and the consensus is that the ballot will flip this time to be 5-4 to cut. Analysts are pointing to Governor Andrew Bailey, who has been uncharacteristically quiet since the last meeting. About a month ago, he suggested he could vote for a rate cut if inflation came down. Since then, CPI growth has eased, but is still well above the 2.0% target, and it may not be enough to convince him to vote for a cut.

Given how close the vote is expected to be, markets will be watching the split closely. Particularly if the inflation figures are higher than anticipated. If more voters favor a cut, traders might start pricing in an earlier cut next year. This would likely weaken the pound.
 

The Jobs Market vs Prices

Public statements from the BOE’s MPC suggest there is a large split between hawks and doves. Doves are concerned that the jobs market is weakening alongside the economy, which will significantly depress prices. They are also concerned that an economic slowdown could cause long-term gilts to spike. Both of those scenarios would substantially weaken the pound. If the BOE expresses concern about the future of the labour market, traders are likely to view it as more dovish.

On the other hand, a large contingent of BOE policymakers is more concerned about inflation. High consumer prices also weigh on the economy, and monetary stability is the BOE’s sole mandate. If the policy statement puts more emphasis on inflation, then markets will likely see it as more hawkish, and might go so far as to price out a rate cut in Q1.

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