Did the BoE just take its first step in a new rate-cutting cycle?

The Bank of England has made its move - a quarter-point interest rate cut to 4.25%. But in today’s environment, even small moves carry big signals. While the cut was widely expected, the real question isn’t what the BoE did. It’s what they’re about to do next. Is this the start of a new rate-slashing cycle, or just a cautious one-off to keep the economy afloat?

A cut that says more than it looks

Yes, it was only 25 basis points. But the message behind the move is louder than the number itself.

Governor Andrew Bailey didn’t commit to a follow-up cut but left the door wide open. He emphasized the BoE is still on a “gradual and careful” path downward. That kind of phrasing is central banker code for we’re open to more cuts, but don’t hold us to a timeline.

Bank of England MPC vote

The Monetary Policy Committee split three ways:

• 5 voted for the 25-point cut
  
  
• 2 wanted a larger 50-point move
  
  
• 2 wanted no change at all
  
  

Translation? There’s no clear consensus. But pressure is mounting - both at home and abroad.

What’s moving the pound?

Initially, the Pound rose on the rate cut, as investors saw it as the BoE finally moving to support the economy. But the bump didn’t last. Markets quickly pivoted to the latest trade developments from the U.S., where President Trump announced what he called a “major breakthrough” in a U.S.-UK trade deal.

Sounds great, right? Not quite. A 10% tariff on UK imports is still set to return in July, keeping uncertainty high and dampening the Pound’s momentum.

GBP/USD remains above its 50-day moving average at 1.3061, but without real clarity on trade, holding that ground could be tough. 

If Sterling can defend this level, it may aim again for the yearly high of 1.3445. But that climb will be steep if U.S. dollar strength continues to build on trade optimism and economic data.

Mortgages, markets, and your money

Homeowners with tracker mortgages are the big winners - about 600,000 households will see their monthly payments drop by an average of £29. Fixed-rate borrowers won’t feel the impact unless they’re refinancing soon, though falling market expectations for future rates could mean better deals ahead.

Borrowers in general may enjoy slightly cheaper loans and credit terms, while savers take the hit, earning less on their deposits just as inflation continues to nibble away at purchasing power.

Businesses may get some breathing room, especially small and medium-sized firms recently hit with higher wage costs and tax contributions. But most are still in “wait and see” mode, hesitant to hire or invest while economic signals remain mixed.

Meanwhile, in Japan…

USD/JPY is trading just below the 146.00 mark, caught in its own tug-of-war. On the one hand, Japanese household spending beat expectations, which should support future Bank of Japan (BoJ) rate hikes. On the other, real wages have fallen for three consecutive months—hardly a green light for tightening.

BoJ minutes from March revealed deep concerns over U.S. tariffs and how they might impact Japan’s export-driven economy. That, paired with a Fed that’s holding rates steady and a dollar boosted by falling jobless claims (down to 228K), creates a strong divergence: the U.S. dollar is backed by a steady central bank and solid data, while the yen remains stuck in caution.

Technical levels show USD/JPY supported at 144.78 and capped around 146.18. Traders watching this pair are essentially watching a central bank chess match unfold.

What’s the bigger picture?

The BoE expects UK inflation to rise to 3.5% temporarily, thanks to energy and household bill spikes, before easing later in the year as global oil and gas prices soften. Growth for Q1 2025 is expected to come in at 0.6%, boosted by U.S. companies stockpiling ahead of tariff deadlines.

But make no mistake: this rate cut isn’t a confidence signal. It’s a cautious, calculated move in an uncertain environment. Business confidence is fragile. Consumer sentiment is shaky. And international trade friction could easily tilt things in the wrong direction.

Governor Bailey was frank: the UK still has a long way to go before it returns to pre-crisis growth levels. Chancellor Rachel Reeves welcomed the rate cut but reminded everyone that households are still feeling the pinch from a high cost of living.

So, is this the start of a new cutting cycle?

Possibly. But don’t expect back-to-back rate slashes. The BoE is clearly playing the long game - balancing fragile growth, sticky inflation, and global instability. If inflation cools faster than expected and global risks worsen, further cuts are likely. But if price pressures resurface or the Fed starts leaning hawkish, the BoE might hold the line.

This isn’t an aggressive pivot - it’s more of a soft step. But it could very well be the first in a slow, steady sequence.

GBP/USD forecast

At the time of writing, the pair is seeing heavy sell pressure as the pound loses ground to the dollar. A recent bearish crossover hints that the pair could slide further. However, the sell volume bars contracting, on the other hand, tells a story of diminishing sell pressure. The head and shoulder pattern coming into play adds to the bearish narrative.

Should prices continue their slide, they could find support at the $1.32066, $1.29193, and $1.28727 price levels. If a price bounce materialises, prices could encounter resistance at the $1.33464 and $1.34023 price levels. 

Looking to trade GBPUSD post-BoE? You can speculate on their price trajectory with a Deriv MT5 or Deriv X account.