BoE Holds Rates, Signals Dovish Shift; Pound Weakens

The Bank of England (BoE) held its key interest rate at 3.75%, but the decision was marked by a significant dovish tilt, triggering a decline in the Pound Sterling (GBP). A closely divided Monetary Policy Committee (MPC) vote – with four members advocating for an immediate cut – signaled growing pressure to ease monetary policy as inflation approaches the 2% target. Markets have now fully priced in a rate cut for April. The BoE projects inflation to reach its target in Q1 2028, with economic growth expected to rise 0.9% in 2026. Analysts at Commerzbank and UBS highlight uncertainty surrounding the BoE’s path, despite expectations of eventual rate cuts. While the US Dollar’s strength, driven by hawkish Federal Reserve signals, also contributed to GBP weakness, the BoE’s stance was the primary driver. Political risks in the UK, including upcoming elections, add to the downward pressure on the currency. Construction PMI data indicated continued contraction in the sector.