BOE Still Expected to Cut Rates This Week

UK stocks opened the week with gains ahead of the widely expected BOE rate cut on Thursday, but investors will focus on the forward path of rates, with analysts expecting a narrow vote.

The Key Developments

• Economists are unanimous in predicting a 25 bps rate cut from the BOE on Thursday.
• Focus will be on the trajectory of rate cuts in the first quarter next year, with traders looking for clues on the timing of the expected next rate cut.
• Analysts predict a narrow 5-4 vote to ease policy amid a major rift among MPC members, with some focused on inflation and others concerned about the jobs market.
• The latest UK employment figures released early on Tuesday showed a slackening in the jobs market, but total pay topped expectations despite weak growth.

Market Sentiment Supported Ahead of BOE

The FTSE 100 started the week in the green after on Thursday. The gains were a rebound from two consecutive weeks of decline, as traders look forward to lower interest rates and whether the BOE will signal that easing will continue into the new year. Ahead of the policy meeting, after UK jobs showed slack, as wage growth declined less than expected. Before the BOE’s rate decision is the release of UK inflation data on Wednesday, which could modify the expectations for the BOE. Analysts expect Britain's headline CPI to fall to 3.4% from 3.6% in the previous month. The core rate is also expected to decline to 3.3%, down from 3.4%.

Public comments from the BOE's MPC suggest a rift between those who worry that job losses pose a greater threat to the economy and those who are more concerned about inflation. Last month, if there were evidence that inflation was falling. Since then, headline inflation has eased, but it remains well above the 2.0% target. If Bailey is convinced, it could be enough to shift the vote 5-4 in favour of easing, which most analysts project. A less balanced ballot, with more doves, could raise hopes that the BOE might cut again early in 2026, weighing on the pound but likely supporting UK equities. Ahead of the rate decision, banks and miners have been among the strongest-performing sectors, as they are likely to benefit from lower interest rates.

Looking Forward to More Cuts

In a recent Reuters poll, at the upcoming December meeting. Around two-thirds expected another rate cut in the first quarter of 2026, but there was considerable debate about whether rate cuts would continue beyond that. The median of economists predicts another rate cut by the third quarter of 2026. Which option will prevail will likely depend on the inflation trajectory, and traders might be looking closely at Governor Bailey's post-rate decision comments for clues on whether the bank expects consumer prices to ease in the coming months.

UK 100 Tests Upper Trendline of Continuation Pattern

The 4-hour chart on Footsie shows an ascending triangle or pennant pattern may be in play. A breakout above 9770 could open the door to 9820 and the record peak of 9960, as RSI shows room for further upside. However, given the recent rejection at the upper trendline, losing the lower end near 9680 will expose the 9600-9620 area, with further declines pointing to 9450.

Source: SpreadEx | UK 100, 4-hour Chart