"BoE's Divided Vote Signals a Policy Shift, Offering a New Floor for the Pound"

The pound sterling has shown resilience in recent trading sessions, with the GBP/USD pair maintaining support above the 1.35000 level amid a recalibration of expectations regarding the Bank of England’s (BoE) monetary policy stance. After posting its strongest six-month performance since 2020, the cable has benefited from a narrowing UK-US yield spread and a reassessment of the central bank’s appetite for aggressive rate cuts [1]. The BoE has delivered five rate reductions in 2025, the most recent bringing the key rate to 4%. However, the recent hawkish economic signals, including a stronger-than-expected services purchasing managers’ index (PMI) and elevated inflation data, have tempered expectations of further easing [1].

The latest BoE decision, which culminated in a rate cut, saw a visibly divided vote, reinforcing the perception of a central bank that is increasingly cautious about aggressive easing. Analysts suggest this division signals a potential shift in policy tone, with some members advocating for a pause in rate reductions given the strength of the service sector and inflationary pressures. The Bank of England now faces a critical juncture ahead of its September meeting, where a decision to halt further cuts could mark a pivotal turning point for the pound [1].

At the same time, the Federal Reserve has signaled a 25 basis point rate cut in its upcoming meeting on September 17, which has limited downward pressure on the pound against the dollar. The contrast between the BoE’s hawkish stance and the Fed’s expected easing has provided immediate support to GBP/USD. Bond market data further highlights this divergence, with UK 2-year sovereign yields hitting their highest level since April, while US 2-year yields continue to decline toward three-month lows [1].

Inflation expectations remain a key focus for both central banks. The U.S. will publish its core Personal Consumption Expenditures (PCE) index on September 28, a key metric for the Federal Reserve. The report will likely play a decisive role in shaping the near-term path of U.S. monetary policy and, by extension, the GBP/USD cross. A surprise rise in inflation could delay or even negate the Fed’s anticipated rate cut, altering the yield differential and influencing the pound’s trajectory [1].

While the UK economic calendar has remained sparse, the data released so far has provided enough clarity to shift market sentiment from a near-certain expectation of BoE easing to a more balanced outlook. The services sector’s robust performance has been particularly influential in this recalibration. Given the ongoing divergence in monetary policy between the UK and U.S., investors are now factoring in a higher probability of a BoE pause, if not a reversal, in the near term. Such a shift could provide a lasting floor for the pound and mark a significant departure from the aggressive easing trajectory seen earlier in the year [1].

Source: [1] GBP/USD: Cable holds above 1.35000 as markets curb BoE rate cut bets (https://www.marketpulse.com/markets/gbpusd-cable-holds-above-135000-as-markets-curb-boe-rate-cut-bets/)