Bank of England No Longer Intends to Cut Rates This Year

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After Bank of England policymaker Megan Greene indicated that she is considering keeping interest rates unchanged at least until March next year, the British pound came under pressure.

Greene believes that current policy is not restrictive enough to overcome persistent price pressures. Speaking Monday at the Society of Professional Economists conference in London, Greene said there are now good reasons to skip several rounds of rate cuts.

In her view, premature monetary easing could undermine efforts to contain inflation and lead to the need for more aggressive tightening later. Such a scenario would not only erode confidence in the central bank but could also trigger financial market instability, creating additional risks for economic growth.

Greene emphasized that the persistence of inflation requires a longer period of high interest rates to suppress demand and reduce price pressures. She also noted that the current geopolitical environment, marked by high uncertainty and the risk of new supply shocks, calls for a cautious approach to monetary policy.

According to Greene, holding off on hasty rate cuts would allow the Bank of England to more carefully assess the impact of previous tightening on the economy and inflation before taking further steps. Such a data-driven, cautious approach would help avoid policy mistakes and ensure a sustainable return of inflation to target.

Market participants now expect that the Monetary Policy Committee (MPC) will decide to keep rates unchanged at its November meeting — the first pause after a three-month cycle of rate cuts that began in August 2024. Greene's comments suggest she may also support skipping the February meeting, when a 25-basis-point cut is currently priced in with roughly two-thirds probability. Markets also expect rates to remain unchanged in December.

Greene, one of four external members of the MPC, voted with the majority in September to keep the rate at 4%, and was among the four dissenters on the nine-member Committee who opposed the August rate cut, when Governor Andrew Bailey cast the deciding vote.

"I think our monetary policy is still restrictive," Greene said. "But it's less restrictive than it was before, and that's concerning, given that in my view, inflation has been rising again over the past year."

The Bank of England expects inflation to soon peak around 4%, double its 2% target.

"I'm concerned that we've just gone through a period where inflation peaked at 11%, and I think that changes people's behavior," she added. "The disinflation process is still underway, but I'm worried that it may be slowing."

Greene argued that to ensure victory over inflation — especially given evidence of stickier price growth — the Bank Rate needs to be more restrictive than the market curve implies.

"One way to achieve that would be to hike and then cut rates," she said. "But I think changing policy direction like that really undermines confidence in the central bank."

As noted above, the British pound reacted with a decline. While keeping rates unchanged would normally support the pound under stable market conditions, in the current environment — with heightened risks of deteriorating trade relations likely to slow the UK economy — the situation only weakens sterling's position.

Technical Outlook: GBP/USD

As for the current GBP/USD technical picture, pound buyers need to break above the nearest resistance at 1.3295. Only then will they be able to target 1.3325, though moving beyond that level could prove difficult. The ultimate upward target lies near 1.3360.

If the pair falls, bears will attempt to regain control below 1.3260. A successful breakout below this range would deal a significant blow to the bulls' positions and push GBP/USD toward 1.3230, with potential to extend the decline to 1.3200.

Technical Outlook: EUR/USD

As for EUR/USD, buyers now need to reclaim the 1.1600 level. Only that would open the path toward testing 1.1630. From there, the pair could move up to 1.1660, though achieving that without support from large players would be quite difficult. The ultimate target remains 1.1690.

In case of a decline, I expect major buying interest to appear around 1.1570. If no buyers emerge there, it may be better to wait for a retest of the 1.1545 low or consider opening long positions near 1.1510.

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