Markets steady ahead of Bank of England rate decision

Bank of England set to cut rates again

The Bank of England (BoE) is widely expected to deliver a 25 basis point rate cut today, taking the base rate to 3.75%. Traders have priced in a roughly 96% probability of this move, which means the immediate market reaction is likely to be muted.

The focus will instead be on the accompanying guidance and the voting split among the Monetary Policy Committee. Any hints about the pace of future cuts could prove more consequential than today's decision itself.

UK bonds, sterling and equities showed little movement in early trading, reflecting this high degree of certainty. The real interest lies in whether the Bank signals a more dovish or hawkish path ahead.

With inflation still above target but economic growth faltering, the BoE faces the familiar challenge of balancing price stability against supporting the economy. The decision itself matters less than what comes next.

Sterling steadies ahead of policy decision

The pound was trading slightly weaker near $1.34 in early dealing, with traders positioning cautiously ahead of the announcement. However, the currency has held up relatively well given the certainty around a rate cut.

Attention is increasingly turning to the euro-sterling relationship, particularly if the Bank adopts a more dovish stance than the European Central Bank. The European Central Bank (ECB) is expected to hold rates steady, potentially creating some divergence in monetary policy.

Sterling's recent resilience has been notable, with the currency managing to hold onto gains despite expectations of further easing. This suggests markets are looking beyond individual rate decisions to the broader economic picture.

UK equities edge higher on energy strength

The FTSE 100 and FTSE 250 were both up around 0.1% ahead of the BoE decision, with energy stocks providing support as oil prices firmed. However, healthcare names were among the laggards, limiting the overall advance.

The modest gains reflect a market that is largely comfortable with the expected policy move. There's little sense of anticipation or nervousness, suggesting traders have positioned themselves accordingly.

Broader European equities were similarly muted, with investors waiting for a cluster of central bank decisions across the continent. Sweden and Norway are both expected to hold rates, adding to the sense of policy stability.

BP's leadership change and Currys' surprise rally

BP shares were little changed following the announcement that Meg O'Neill will take over as chief executive. Analysts remain divided on the strategic implications of the appointment, particularly regarding the company's energy transition plans.

The muted reaction suggests investors are taking a wait-and-see approach. BP has struggled to convince the market of its strategy in recent years, and a new CEO brings both opportunity and uncertainty.

In contrast, Currys jumped as much as 15% after reporting profit figures ahead of expectations. This came despite management flagging a more challenging UK consumer backdrop, highlighting the low bar that had been set.

The electronics retailer's rally demonstrates how beaten-down stocks can surprise on the upside when expectations are sufficiently depressed. However, the company's cautious outlook suggests this may prove a brief respite rather than the start of a sustained recovery.

Central banks dominate global agenda

Today's BoE decision is just one of several central bank meetings taking centre stage. The ECB is also expected to hold rates steady, maintaining its cautious approach to monetary easing.

Sweden and Norway are both forecast to keep policy unchanged as well, reflecting the varied pace of disinflation across different economies. This divergence in policy timing has become a key theme for currency markets.

The concentration of central bank decisions on a single day tends to amplify market moves, as traders digest multiple policy signals simultaneously. However, with most outcomes largely priced in, the risk of significant surprises appears limited.

Looking ahead, the Federal Reserve's path remains paramount for global markets. US inflation and jobless claims data will be closely watched for clues about the Fed's policy intentions through 2026.

US data in focus for Fed policy clues

Beyond today's central bank decisions, investors are looking across the Atlantic for fresh economic data. US inflation figures and jobless claims will offer important insights into the Federal Reserve's (Fed) likely policy trajectory.

The Fed has signalled a more cautious approach to easing than many had anticipated, citing persistent inflation pressures. Any data that reinforces this view could support the dollar and put pressure on risk assets.

Conversely, signs of cooling inflation or weakening employment could revive hopes for a more dovish Fed policy path. This would likely benefit equities and weigh on the greenback.

What to watch

The BoE's guidance and voting split will be crucial in determining whether today's expected rate cut marks the start of a more aggressive easing cycle or a measured, data-dependent approach. Market reaction may be delayed until these details emerge.

Sterling's relative performance against the euro will be telling, particularly if the ECB maintains a firmer stance than the BoE. Any widening in rate differentials could drive further currency moves.

Keep an eye on UK gilt yields across the curve. While near-term rates are well anchored by policy expectations, longer-dated yields could move more significantly based on the Bank's economic forecasts.