The Bank of England’s long predicted interest rate cut immediately knocked the pound down in value against the euro and dollar on Thursday. Meanwhile, in light of continuing Trump instability, the dollar once again gained on the euro as traders bought the safe haven currency.
Yesterday saw the Bank of England announce an interest rate cut down to 4.5%, sending the pound into a steep decline. While the move was expected, the announcement was coupled with a damning downgrade of The Bank’s 2025 growth forecasts. Due to weakness in household and business confidence, The Bank predicts just 0.75% growth this year, half of its original estimate.
Bank of England governor Andrew Bailey also warned that inflation was due to rise by autumn. While raising interest rates is usually the Bank’s lever to squash rising inflation, because UK growth is so poor, Bailey said there were likely to be two more interest rate cuts this year. Two of the seven-person Monetary Policy Committee, the group who vote on the interest rate cut, pushed for an even larger 0.5% cut. One of the two, Catherine Mann, was previously a staunch supporter of high interest rates, a further indictment of the UK’s growth prospects.
The downgrades and announcements painted a poor picture for the UK and the markets reacted, seeing sterling fall against the dollar and the euro. Though, by end of day, the pound had regained some lost ground.
Outside of unscheduled announcements from President Trump, the big news from the US this afternoon is payroll and unemployment data. In December, Biden announced there had been a surge in the newly employed, with more than 250,000 people added to payroll lists. Today’s Non Farm Payroll figures are expected to be significantly lower and it is unclear how the market will react to the news of a slump.
While the euro benefitted from yesterday’s knocks to sterling, the threat of tariffs loom large this morning as Germany’s Balance of Trade data reveals its surplus has grown beyond forecasts. Currently the country is exporting €20bn more in goods and services that it is importing, and it is exactly this deficit that is motivating Trump’s threats to clamp down on EU imports. Ironically, the rise in German exports may be driven by US importers doing deals before the feared tariffs are imposed.
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