BoE 'early Christmas present to markets' as Bailey to 'side with the doves' but expect 'vague' guidance

The Bank of England appears poised to deliver an early Christmas present to markets in the form of another interest rate cut on Thursday, although those hoping for a unified message and clear guidance may be left wanting.

The doves on the committee have a reasonable argument going for them. Growth is slowing, the jobs market has continued to cool and the budget tax hikes should dampen economic activity in 2026. Yet, chronic worries over inflation mean that the committee is as divided as ever. On balance, we think that Governor Bailey will side with the doves, but with the rest of the committee seemingly entrenched in their views, he may be the only official to change their vote from the previous meeting,  

No less important will be the accompanying guidance. We expect the bank to remain as vague as possible, other than to say that further cuts will be “gradual” and dependent on incoming data. Governor Bailey will do his best to maintain maximum optionality, although any suggestion that the bank is more closely aligning itself with the Taylor Rule, which would imply a couple more rate cuts in 2026, could open up some downside in the pound.