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The British pound surged past $1.25, hitting its highest level since January 7, ahead of the Bank of England’s policy decision. Markets anticipate a 25bps rate cut to 4.5%, driven by slowing economic growth and declining services inflation. Meanwhile, the UK private sector showed modest expansion, with the composite PMI at 50.6, led by services growth despite weak manufacturing. House price growth slowed, mortgage lending hit a two-year high, and UK inflation concerns persisted. A weaker US dollar also supported the pound, while global trade uncertainty added caution. Investors are closely watching BoE’s inflation and GDP forecasts for further market direction.

Key Highlights

* The British pound surged past $1.25 ahead of the BoE policy decision.

* Markets expect a 25bps rate cut to 4.5%, citing economic slowdown.

* UK Composite PMI rose to 50.6, led by modest services growth.

* UK house price growth slowed, while mortgage lending hit a two-year high.

* Inflation concerns persisted as input costs hit an 18-month high.

The British pound appreciated beyond the $1.25 mark, reaching its highest level since January 7, driven by a combination of a weaker US dollar and anticipation surrounding the Bank of England’s upcoming policy decision. Markets widely expect the BoE to cut interest rates by 25bps to 4.5%, given signs of economic weakness and easing inflation in the services sector. Investor focus is also on the central bank’s updated GDP and inflation forecasts, which could shape expectations for future rate adjustments.

Supporting the pound’s rally, the latest S&P Global UK Composite PMI indicated a slight expansion in private sector activity, rising to 50.6 from 50.4. However, the services sector carried this growth, while manufacturing continued to struggle, with its PMI at 48.3. New orders declined sharply, and employment cuts accelerated, reflecting businesses’ concerns over weak demand and higher costs. Notably, input price inflation surged to an 18-month high, adding to inflationary pressures.

Meanwhile, the UK housing sector presented mixed signals. The Nationwide House Price Index showed a slowdown in annual price growth to 4.1%, below expectations. However, mortgage lending activity reached its highest level since September 2022, signaling resilience in the housing market despite affordability concerns. The effective mortgage rate on new loans fell slightly to 4.47%, its lowest since April 2023, potentially supporting housing demand in the near term.

On the global front, concerns over US-China trade tensions and potential tariff risks continue to loom over financial markets. While the UK is expected to avoid direct tariff impacts, broader economic uncertainty could weigh on growth prospects. As markets await the BoE’s decision, traders are closely monitoring inflation trends and central bank commentary for future monetary policy direction.

Finally

The British pound’s strength hinges on BoE’s decision and inflation outlook. A dovish stance could limit gains, while resilience in housing and services may offer support. Key levels to watch: $1.25 resistance, with downside support near $1.2450.

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