GBP remained on the back foot yesterday following on from the undershoot in November's inflation numbers as well as Tuesday's job numbers showing unemployment rose to the highest since early 2021.
*Daily move - against G10 rates as of 06:00 GMT, 18.12.25
** Indicative rates - interbank rates as of 06:00 GMT, 18.12.25
The MPC decision is due at noon today, with a 25bp cut to 3.75% widely expected. Markets price around a 95% probability, a view reinforced by recent soft job market and CPI data. We expect a close 5–4 vote split in favour of easing, with Bailey likely backing a cut. Any larger majority would raise the odds of another move as early as February – current pricing suggests a second cut could be in April.
Guidance is expected to be little changed, retaining language that further easing will be “gradual.” Recent dovish data should keep the door open to multiple cuts in 2026, rather than signalling an end to the easing cycle – a contrast to other central banks.
The ECB rate decision will likely cause no fireworks with no change in guidance or interest rates.
Later in the afternoon we have US CPI. Markets expect headline inflation to rise slightly to 3.1% and core inflation to hold at 3.0%. This is a critical report as it follows a 43-day government shutdown that cancelled the October release, and the results will likely dictate whether the Federal Reserve continues its cycle of interest rate cuts into early 2026.
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