The Bank of England’s Monetary Policy Committee was split 5-4 in favour of an interest rate cut last week.
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In a widely expected move, policymakers in the UK cut interest rates by 25bps to 3.75% last week, the lowest rate for nearly three years. The reaction on money markets was immediate, with the pound strengthening against the dollar to near two-month highs.
While the cut came as no surprise, the decision from the Bank of England (BoE) Monetary Policy Committee was tighter than expected (five votes to four), suggesting that further easing in early 2026 is not guaranteed.
The move came as UK data sent mixed signals: inflation cooled faster than expected to 3.2% in November, while GDP fell for a second month running.
The pound strengthened against the euro, and is up 0.80% over the last month. Despite the improvement, sterling remains 6% lower than the highs seen in the last year.
The dollar edged higher
Elsewhere, the dollar rallied slightly against the euro, though it remains nearly 11% down in 2025.
Both of the major European currencies – the pound and euro – finish the year in a much stronger position against the greenback than they started it.
The week ahead:
It will be a quiet week on both sides of the Atlantic as Christmas looms, though final Q3 GDP figures in the UK (Monday) will be of interest to money market investors, alongside estimated GDP figures in the US (Tuesday).
