Date: 6th February 2025.


Analysts Expect the BoE To Cut GDP Forecasts and Raise Inflation Projections!


At 12:00 GMT, the Bank of England will reveal its latest rate decision, with economists anticipating some changes. Analysts expect the changes to spark volatility in the Great British Pound and the FTSE100 throughout the day. Currently, the GBP Index is trading lower, but what can traders expect from the BoE and what will it mean for the British Pound?


What to Expect from the Bank of England?


Analysts predict officials will lower the interest rate by 25 basis points to 4.50% and downgrade economic growth forecasts, signaling a continued “dovish” stance. Overall, borrowing costs could decrease by 85 basis points this year. Today’s interest rate cut will be the UK’s first rate adjustment since September 2024. The interest rate decision itself will have a limited effect on the GBP as the adjustment has already been priced in the market.


The price movement will largely depend on the Bank of England's adjustments to their predictions for GDP in 2025, inflation expectations and the Monetary Policy committee votes. Analysts expect the committee to have eight members vote for rate cuts and one to vote for a pause. Even if one member votes for a different adjustment, the GBP may experience higher volatility.


The Bank of England may also amend their expectations for 2025 to indicate lower growth and higher inflation. Many UK economists believe the BoE will cut the UK’s Gross Domestic Product projections from 1.5% to 1.00%. Higher inflation is also likely to be a key part of today’s BoE press conference as higher national insurance contributions are likely to trigger higher inflation and lower consumer demand.


GBPUSD - The US Dollar On the Round?


The British Pound is not witnessing any significant decline in value as the Bank of England rate decision approaches. However, the GBP Index is trading 0.25% lower largely due to the US Dollar which is rebounding after declining for 3-days. The price movement of the US Dollar will largely depend on tomorrow’s employment data and any further decisions on tariffs.


President Donald Trump approved a 25.0% tariff on Mexican and Canadian goods starting on February 1st, but implementation was delayed after agreements were reached. Canada and Mexico reportedly committed to stricter border controls. Markets have since shifted focus to potential tariffs on EU imports, though no decisions have been made.


In response, the European Commission announced plans for retaliatory measures, despite the risk of worsening global trade conditions. Meanwhile, Morgan Stanley analysts revised their monetary policy forecast, now expecting just one 25-basis-point rate cut instead of two. They believe Trump's tariff policies will drive inflation higher, limiting further adjustments in the near term.


Any statements or decisions on tariffs are likely to spark volatility and may benefit the US Dollar. The same applies to tomorrow’s employment data: NFP Employment Change, Salary Growth and the US Unemployment Rate. If the data indicate a stable and resilient employment sector, the US Dollar can rise further. Currently, the US 10-Year Treasury trades 17 points higher which can also support the USD if the yields continue to rise throughout the day.


GBPUSD - Technical Analysis


The price of the exchange rate (GBPUSD) is trading downwards towards the main trendlines and the average price. The current bearish swing has corrected the previous impulse wave and the GBPUSD now trades at the support level. If the price drops below the previous low at 1.24613, the price movement would indicate a potential change in trend in favour of the Dollar. However, this would also depend on the BoE, NFP and tariffs.


Key Takeaways:


* The BoE is set to cut rates to 4.50%, with possible GDP and inflation downgrades for the UK.
* GBP and FTSE100 volatility hinges on BoE statements, policy votes, and 2025 projections. The GBP index trades lower as the US Dollar regains momentum.
* The USD rebounds after a three-day dip, driven by potential tariffs and NFP data.
* If the GBPUSD drops below 1.24613 could signal a bearish shift.


Always trade with strict risk management. Your capital is the single most important aspect of your trading business.


Please note that times displayed based on local time zone and are from time of writing this report.


Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work.

Michalis Efthymiou
HFMarkets


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.