The British pound sterling held steady on Thursday as investors awaited the Bank of England’s (BoE) latest policy decision, widely expected to include a reduction in borrowing costs. Analysts anticipate this will mark the sixth rate cut in the current cycle and the fourth in 2025, reflecting slowing inflation, a weakening labor market, and sluggish economic growth in the United Kingdom.

Investors are almost fully pricing in a quarter-point cut to the Bank Rate, from 4% to 3.75%, as the BoE looks to support growth while navigating persistent inflation pressures.

Sterling Performance Ahead of BoE Decision

Ahead of the announcement, sterling was little changed against the U.S. dollar at $1.3373, following a slight decline the previous day. Against the euro, the pound edged down to 87.85 pence, reflecting investor caution in the lead-up to the BoE decision.

Recent inflation data showed that British consumer price inflation fell sharply to 3.2% in November, its lowest level since March 2025. Economists surveyed by Reuters had forecast a decline to 3.5%, meaning inflation eased faster than expected.

Regina Schleiger, director of central bank policy research at SGH Macro Advisors, noted:

“Price pressures have decisively peaked, and we expect further easing of 75-100 basis points through 2026.”

BoE Rate-Cutting Outlook

Despite signs of slowing inflation and a looser labor market, investors are only fully pricing one more 25-basis-point rate cut in 2026, likely by April. A second cut later in the year is seen as having a roughly 70% probability.

The BoE’s Monetary Policy Committee (MPC) has been closely divided in recent months. In November 2025, the committee voted 5-4 to keep rates on hold, reflecting differing views on the timing and scale of monetary easing. Economists, including Elisabet Kopelman from SEB, believe the pieces for renewed easing are falling into place, but caution that much depends on how individual MPC members interpret incoming economic and labor market data.

Broader European Central Bank Actions

Thursday’s BoE announcement comes amid a busy day for central banks across Europe. Sweden’s Riksbank, Norway’s Norges Bank, and the European Central Bank (ECB) are all scheduled to release policy updates, influencing currency markets and investor sentiment in the region.

Implications for Investors and Consumers

The expected BoE rate cut is likely to provide modest support for economic growth and reduce borrowing costs for consumers and businesses, although inflation remains above the BoE’s target in key sectors, particularly services. Currency traders and international investors will closely watch sterling’s response to the announcement, particularly against the dollar and euro, for signals on the future path of UK monetary policy.