Gold prices slip as stronger dollar, Fed rate uncertainty weigh
Investing.com -- The Bank of England is expected to keep interest rates unchanged at its November 6 meeting despite recent improvements in inflation and wage data, according to analysis from ING.
Markets are currently pricing a 25% chance of a 25 basis point cut, a significant shift from earlier expectations when a November rate reduction seemed unlikely. Recent data shows inflation has likely peaked, with food inflation falling in September to half a percentage point below official forecasts.
ING notes that the Bank’s preferred "core services" inflation measure has dropped below 4%, while private-sector wage growth has slowed markedly and is projected to end the year below 4%, down from 6% at the start of 2025.
The Monetary Policy Committee remains deeply divided on the inflation outlook. Hawks worry that 4% inflation risks becoming entrenched, while doves argue that the cooled job market means workers and firms lack the bargaining and pricing power they had after the pandemic.
Despite improving data, ING believes the Bank’s position hasn’t shifted as dramatically as market pricing suggests. The upcoming meeting is expected to result in a 6-3 or possibly 5-4 vote in favor of holding rates, with known doves Swati Dhingra and Alan Taylor likely voting for a cut, potentially joined by Dave Ramsden and possibly Sarah Breeden.
The Bank’s new economic projections are not expected to differ significantly from August, though near-term inflation forecasts may be revised downward following recent undershoots.
ING doesn’t anticipate clear forward guidance on future rate moves, noting the Bank typically avoids signaling specific meeting outcomes. Additionally, policymakers are awaiting details from the forthcoming Autumn Budget before making further decisions.
A December rate cut is becoming increasingly likely, according to ING, particularly if the budget reinforces fiscal tightening already planned for next year. ING now considers a pre-Christmas cut as their base case, with two further reductions expected in 2026.
For the pound, ING suggests a temporary bounce could follow a rate hold this week, with EUR/GBP potentially reaching the 0.8730/50 area. However, a tight budget later this month and a December rate cut could put renewed pressure on sterling.