The Bank of England is expected to cut interest rates in its upcoming meeting, reflecting weakening UK economic data, while the European Central Bank maintains a steady stance after a series of tightening moves. Markets are adjusting to diverging monetary policy paths between the UK and eurozone.
- BOE expected to cut benchmark rate from 5.25% to 5.00%
- UK inflation at 2.1%, below target, and GDP flat in Q3
- ECB maintaining 4.50% deposit rate with no immediate cuts expected
- EUR/USD at 1.0950, GBP/USD at 1.2640
- UK100 up 0.8%, EZ50 up 0.5%, Bund yields stable at 2.45%
- UK 10-year yield at 4.25%, declining on cut expectations
The Bank of England is widely anticipated to implement its first rate cut since 2022, with policymakers signaling growing concern over sluggish growth and softening inflation pressures. Recent data shows UK inflation at 2.1%—below the 2.5% target—while GDP growth for Q3 remains flat. The move is expected to lower the benchmark rate from 5.25% to 5.00%, marking a shift from the hawkish posture of the past two years. In contrast, the European Central Bank has settled into a stable policy framework following a series of hikes that lifted the key deposit rate to 4.50%. With eurozone inflation moderating to 2.4% and inflation expectations anchored, ECB officials are signaling a pause. This divergence in policy trajectories is reinforcing the euro’s strength, with the EUR/USD trading near 1.0950, up 1.2% over the past month. Currency markets are adjusting accordingly: the GBP/USD has dipped to 1.2640, its lowest level since October, as investors price in reduced yield differentials. Meanwhile, UK 10-year government bond yields have fallen to 4.25%, driven by expectations of future cuts, while German Bund yields have held steady around 2.45%, reflecting greater stability in the eurozone. Equity markets are also responding. The UK100 index rose 0.8% on the news, as lower rates typically support valuations, while the EZ50 gained 0.5% amid improved sentiment in the eurozone. Traders are now positioning for a broader trend of rate cuts in 2026, particularly in the UK and Canada, while the U.S. Federal Reserve remains on a more cautious path.