Hawkish interest rate cut by the Bank of England – Commerzbank

Ultimately, the Bank of England delivered on the promise of an exciting decision, Commerzbank's FX analyst Michael Pfister notes.

BoE delivers a hawkish surprise

"Although the expected interest rate cut of 25 basis points was implemented, the vote had to be repeated due to a lack of a majority. Initially, four decision-makers voted in favour of keeping interest rates unchanged, four voted in favour of a 25 basis point cut, and one voted in favour of a 50 basis point cut. It was only during the second ballot that a narrow majority of five voted in favour of a smaller cut. Compared to market expectations, this was a clear hawkish surprise, and the pound appreciated."

"Beneath the surface, the uncertainties continued unabated. Decision-makers appear increasingly concerned about persistent inflation, with the forecast for September 2025 raised to 4% (two percentage points above the target). During the press conference, Bank of England Governor Andrew Bailey emphasised the 'genuine uncertainty' surrounding the way forward."

"It seems extremely unlikely that interest rates will be raised. Rather, the question is when we can expect the next rate cut. The September meeting now seems highly improbable, and if inflation remains high until then, even the November meeting could be called into question. For the time being, this is good news for the pound."