FX analysis: MPC ‘more divided than the market was expecting’ – London Business News | Londonlovesbusiness.com

On Thursday the Bank of England’s Monetary Policy Committee (MPC) has announced they will keep interest rates at 4.75%, in yet another blow for Labour.

The Bank of England voted to hold rates steady at 4.75% as expected, but with a much smaller majority than expected at 6-3.

The MPC appears to be much more divided than the market was expecting, with Ramsden and now Taylor joining Dhingra in voting for a rate cut.

The driver is the softer growth and labour market data this month, and in particular the indication in the PMIs that firms are shedding jobs at a pace not seen in years.

Meanwhile the majority are sticking to the script of a ‘gradual’ path and non-commitment to further cuts. There are many factors for the BoE to weigh next year that make the path so uncertain: the underlying path of services inflation and wage growth, the budget impact, and US trade policy are among them. It will remain the hawkish outlier in Europe.

With the MPC overall looking more dovish than before, markets are rightly pricing in some extra easing for 2025, which is weighing on the pound. A slow easing cycle is absolutely justified by the slow inflation progress and the incoming budget stimulus, but bets on fewer than 50bps in cuts always looked a little stretched to me, and that had left sterling vulnerable to dovish surprises or some weaker data.