KEY POINTS:

• The BoE is widely expected to cut by 25 bps bringing the Bank Rate to 3.75% vs 4.00 prior
• The vote split is expected to be 5-4 in favour of the rate cut, with Bailey joining the dovish camp
• The focus will be on the vote split and the forward guidance
• No press conference at this meeting
• You can find a summary of expected market reaction at the bottom of the article

The Bank of England (BoE) is widely expected to cut by 25 bps bringing the Bank Rate to 3.75% vs 4.00% prior. There’s a strong consensus that the vote split will be 5-4 in favour of the rate cut, with Governor Bailey joining the dovish camp this time around. The focus will be on potential dovish surprises in the vote split or forward guidance. There won’t be a press conference at this meeting.

VOTE SPLIT:

The first thing traders will look at is the vote split. At the last decision, the expectations were for the vote split to show 6-3 in favour of a hold, but BoE’s Breeden decided to join the dovish camp by voting for a 25 bps cut. That resulted in a 5-4 vote in favour of a hold with Governor Bailey preferring to wait for more data before voting for a cut.

The first reaction to the vote split was dovish, but as traders skimmed Governor Bailey’s views in the meeting minutes, the market came to the conclusion that a rate cut was not yet assured and that it would have needed support from the economic data.

The data then confirmed that a rate cut in December was coming. Moreover, the continues weakening in the labour market kept traders speculating on more easing in 2026. These speculations got exacerbated yesterday following the big downside surprise in the UK CPI report.

A 6-3 vote split in favour of a rate cut will therefore be interpreted as more dovish than expected and will likely bring the next rate cut expectations forward. That should weigh on the pound and boost the UK stock market. On the other hand, if we end up with no rate cut, it would be seen as a hawkish surprise trigger upside in the pound and downside in the stock market.

STATEMENT:

The guidance in the statement is expected to remain unchanged. It was tweaked in November and the market doesn’t expect changes already at this meeting. If “gradual” is removed, it will likely be taken as a dovish surprise.

MINUTES:

Traders will look for individual members’ views in the new minutes format to get a sense of the next rate cut timing. The focus will centre mainly on Bailey and the hawkish members. An easing in the hawkish tone would be interpeted as a dovish surprise and bring rate cut expectations forward.

You can read their latest views here

MARKET PRICING:

• Today’s rate cut: 100% probability
• Total easing in 2026: 68 bps
• Next fully priced rate cut in April 2026

MARKET REACTION:

Traders will look for deviations from the above-mentioned expectations. Dovish surprises will likely weaken the pound, especially against currencies like the euro where the market has started to bet on potential rate hikes. Dovish surprises are also very supportive for the UK stock market, which could get another boost into new all-time highs.

On the other hand, hawkish surprises should have the opposite effect, especially for the stock market where a selloff would be highly likely. The pound could get a lift in the short-term, but with the expected selloff in the stock market and downside in yields, the GBP could eventually weaken as traders could start to price in more aggressive rate cuts further down the curve.