The Pound Sterling (GBP) is trading on the defensive against most major currencies and UK 10-year government bonds are underperforming global peers. Yesterday, the Bank of England (BOE) reduced the policy rate 25bps to 4.50% (widely expected) and stressed there would be ‘a gradual and careful approach’ to the further rate cuts. Markets imply an additional 75 to 100bps of cuts over the next 12 months, BBH FX analysts note.

GBP is trading on the defensive against most major currencies

“The MPC voted by a majority of 7–2 to cut rates. The two dissenting members, uber dove Swati Dhingra and surprisingly Dr. Catherine Mann, preferred a 50bps cut. Dr. Mann was a staunch hawk on the MPC, so her policy stance change lowers the bar for more BOE easing.”

“The BOE minutes highlights that for one of the two members that voted for a 50bps cut ‘a more activist approach at this meeting would give a clearer signal of financial conditions appropriate for the United Kingdom.’ Dr. Mann is an outspoken proponent of an activist monetary policy strategy.” 

“In the current economic cycle, this strategy implies keeping rates on hold for longer until there are clear signs the remaining persistence in inflation dissipates. Once inflation persistence has been purged, it would then be appropriate to ease fast and forcefully. ”