On Thursday, May 8, 2025, the Bank of England (BoE) is widely expected to announce a 25 basis points (bps) cut in its interest rate, reducing the Bank Rate from 4.5% to 4.25%. This decision comes amid growing concerns over the economic impact of U.S. trade tariffs and the overall slowdown of the U.K. economy. Governor Andrew Bailey and other policymakers have maintained a cautious approach to monetary easing, emphasizing the need for careful consideration given the lingering uncertainties in the economic landscape.
Economists surveyed by Reuters predict that the BoE will continue its quarterly pace of easing, suggesting that the Bank Rate could further decline to around 3.75% by the end of 2025. However, market participants appear to be even more dovish, with traders pricing in three additional cuts by the end of the year, projecting a rate of 3.50%. The market will be closely monitoring the voting split among the Monetary Policy Committee members and any significant downgrades to growth and inflation forecasts that may accompany the announcement.
One of the key figures to watch is Swati Dhingra, known for her dovish stance, who may advocate for a more substantial 50bps reduction. The BoE's decision will be accompanied by the publication of the Monetary Policy Report and minutes from the Monetary Policy Committee meeting, which will be released slightly later than usual at 12:02 PM BST due to the national two minutes of silence commemorating the 80th anniversary of VE Day.
From a market perspective, the EUR/GBP exchange rate is currently testing support at the 55-day exponential moving average (EMA), which stands at 0.8460. A strong rebound from this level could indicate the continuation of a rally that began at 0.8239. Conversely, a sustained break below this EMA could signal a near-term bearish reversal, opening the path toward the 0.8221/0.8239 support zone.
In the broader context, the U.S. Dollar (USD) has shown signs of strength against its rivals, as investors digest the Federal Reserve's recent policy decisions. The Fed announced on May 7, 2025, that it would maintain its federal funds rate at a range of 4.25% to 4.5%, aligning with market expectations. Fed Chairman Jerome Powell indicated that the central bank would adopt a patient approach, awaiting further data to assess the impact of tariffs on inflation and employment.
As the U.K. prepares for the BoE's decision, U.S. President Donald Trump has hinted at a significant trade deal with the U.K., which could be announced later in the day. This anticipated agreement has generated optimism among investors, contributing to the upward momentum in British stocks. The FTSE 100 index opened 0.25% higher on Thursday, recovering from a previous decline.
Despite this optimism, the British pound has experienced a decline against the dollar, trading at approximately 1.32, down over 1% from earlier levels. Analysts suggest that the BoE's expected rate cut is a response to the economic challenges posed by U.S. tariffs, which have added pressure on the U.K. economy. The National Institute of Economic and Social Research has indicated that the U.K. economy is likely to grow by only 1.2% in 2025, down from previous forecasts of 1.5%, reflecting weaker domestic demand and global economic uncertainty.
In addition to the BoE's decision, the economic calendar for the day includes the release of Initial Jobless Claims and Unit Labor Costs data from the U.S. These figures will be closely watched as they provide insight into the health of the U.S. labor market amid ongoing economic challenges.
Looking ahead, the announcement of the trade deal between the U.S. and the U.K. is expected to further impact market sentiment. While details remain under wraps, discussions have reportedly focused on lowering tariffs on goods traded between the two nations, which could signify a significant step toward closer economic ties.
In corporate news, Next PLC has reported first-quarter sales that exceeded expectations, attributing the strong performance to a rise in demand for summer clothing due to warmer weather. The retail chain has also raised its profit outlook for the year, reporting an 11.4% increase in full-price clothing sales in the 13 weeks leading up to April 26 compared to the same period last year.
Additionally, InterContinental Hotels Group PLC has announced that it is on track to meet its full-year profit target, reporting a 3.3% jump in global revenue per available room for the first quarter. This positive performance contrasts with the broader economic concerns facing the U.K. as it navigates the challenges posed by external factors such as U.S. tariffs and domestic economic pressures.
As the day unfolds, all eyes will be on the BoE's announcement and the potential implications for the U.K. economy, currency markets, and investor sentiment. The decisions made today could set the tone for monetary policy in the coming months, highlighting the delicate balance policymakers must strike in addressing economic challenges while supporting growth.
