What to expect from the February Bank of England meeting​

​​​Bank of England expected to cut rates

The Bank of England (BoE) looks set to make its third interest rate cut since the COVID-19 pandemic, with markets pricing in a 25-basis point (bp) reduction at the February meeting. This would take the base rate down from its current level of 4.75%. Recent economic data has strengthened the case for monetary policy easing. UK inflation has continued to decline, while growth remains sluggish and the labour market shows signs of cooling.

The Monetary Policy Committee (MPC) appears increasingly divided on the appropriate path forward. Some members advocate for aggressive easing, while others like Deputy Governor Sarah Breeden prefer a more cautious approach and Governor Andrew Bailey's statement will be crucial in signalling the potential pace and extent of future cuts.

Markets currently anticipate three quarter-point reductions throughout 2025.

Updated economic forecasts in focus

The February meeting coincides with the BoE's quarterly Monetary Policy Report, providing fresh economic projections that could justify rate cuts. These forecasts will be closely scrutinised by traders.

Previous forecasts had painted a challenging picture for UK growth, with high interest rates weighing on economic activity. Any downward revisions could strengthen the case for monetary easing. The labour market outlook will be particularly important, as wage growth has been a key concern for the MPC. Recent data suggests pay pressures are finally starting to ease.

Inflation projections will also be critical, with the BoE needing to balance the risk of persistent price pressures against growing evidence that inflation is returning to target.

Market implications of the decision

The decision will have significant implications for various markets, particularly for those looking to engage in forex trading. Sterling could see increased volatility around the announcement, especially if the BoE's guidance on future cuts differs from market expectations. A more dovish stance could pressure the pound.

UK government bonds may also react strongly to the decision, with yields potentially falling further if the BoE signals a series of cuts ahead. This could impact trading strategies. Stock market sectors will likely respond differently, with rate-sensitive areas like real estate potentially benefiting from lower borrowing costs.

​Four potential scenarios for traders

Four potential scenarios for traders Markets should be prepared for several possible outcomes from the February meeting. The base case involves a 25-bp cut with guidance suggesting gradual reductions throughout 2025. A more dovish surprise could see the BoE signal faster cuts ahead, while a hawkish pause would mean rates remaining unchanged despite market expectations.

The least likely but most impactful scenario would be an aggressive 50-bp cut, which could trigger significant market moves across various asset classes.