BoE poised to lower rates, Pound steady

The British pound is up for a fifth consecutive day. In the European session, GBP/USD is trading at 1.3370, up 0.17% on the day. The pound has climbed 1.2% in the current rally.

BoE expected to cut, split vote likely

The Bank of England is widely expected to lower the cash rate by a quarter-point at today's meeting. This would bring the rate down to 4.0%, its lowest level since March 2023.

The BoE finds itself between a rock and a hard place, and that will likely be reflected in a split decision by MPC members. The UK economy is struggling, which supports the case for a rate cut. The economy contracted in April and May and wage growth is slowing. There are signs that the labor market is cooling, as employers have decreased hiring after the budget hiked payroll taxes and the minimum wage.

The other side of the coin is the inflation picture. Inflation has been moving higher and hit 3.6% in June, up from 3.4% a month earlier. This is significantly higher than the BoE's 2% target and a rate cut would likely boost inflation even higher.

The decision will likely be a split vote, with up to three MPC members voting against a quarter-point cut. In May, the last time the BoE lowered rates, the vote was split three ways in what was considered as "hawkish cut". That scenario could repeat itself at today's meeting.

With a rate cut today, the BoE will be signaling that it is more concerned about economic growth than the upside risk of inflation. That stance could change if inflation gets uncomfortably high.

• 1.3389 has held in resistance since July 28. Above, there is resistance at 1.3422
• 1.3336 and 1.3303 are providing support