'Divided' BoE gives Pound modest leg up as markets dial back rate cute expectations

The Bank of England appears thoroughly divided over the path ahead for UK rates, with committee members appearing at odds as to how best to tackle the acute uncertainty created by President Trump’s tariffs. In an attempt to counteract the growth risks posed by the tariffs, and in acknowledgement of progress on disinflation, the majority of the MPC voted for a 25 basis point cut, with two of the doves even favouring a 50bp move.

Yet, surprisingly, two of the hawks were in favour of no change, with the bank suggesting that the impact of the tariffs on UK growth and inflation would probably be minimal. The MPC also reiterated the line that additional cuts would be both “gradual and careful”, a stance intended to temper expectations for aggressive easing in the coming months.

The pound has received a modest leg up following the announcement, as markets dial back bets in favour of lower UK rates. We think that a pause is almost guaranteed at the bank's next meeting in June, with no more than two further cuts likely to follow during the rest of the year. This cautious approach should, we believe, act to keep sterling well bid, particularly given Britain’s relative isolation from the growth risks posed by US protectionism.