GBP/USD is currently holding above the 1.3000 level, according to analysts at BBH FX. Anticipation surrounds the Bank of England’s decision regarding the policy rate, which is expected to remain at 4.00%.
Policy Rate Decision
The market suggests a 30% probability of a 25bps cut to 3.75% in today’s announcement. A 6-3 vote split among MPC members is anticipated, with three dissenters supporting a 25bps rate cut.
The Bank of England is likely holding off on any cuts until after the UK budget announcement on November 26. Current UK inflation nearly doubles the BOE’s 2% target, and Q3 GDP growth is expected to surpass the BOE’s 0.3% quarterly projection.
The forecast update is to be revealed alongside the policy decision in the November Monetary Policy Report. The forthcoming UK budget’s expected fiscal drag might create opportunities for more rate easing within the next year. Efforts to address a £35 billion fiscal gap are likely to focus on tax increases over spending reductions, contributing to GBP underperformance in currency crosses.
With the Bank of England expected to hold its policy rate at 4.00% today, we are closely watching the GBP/USD pair’s ability to stay above the 1.3000 level. The market is pricing in a 30% chance of a cut, but the expected 6-3 vote to hold steady suggests the bank is not ready to move. This hesitation creates a tense short-term environment for the pound.
This cautious stance is understandable given that the latest inflation data from October 2025 showed the Consumer Price Index (CPI) at 3.8%. While this is a slight decrease from the 4.1% we saw in September, it remains stubbornly high and well above the bank’s 2% target. The persistence of this inflation justifies waiting for more data before committing to rate cuts.
Economic Projections and Fiscal Policy
Next week’s Q3 real GDP data, due on November 13, is the next major checkpoint and is expected to confirm the economy’s resilience. Recent business activity surveys, like the October S&P Global/CIPS UK Composite PMI which registered a solid 52.5, support the view that growth will exceed the BOE’s 0.3% projection. This strong economic data gives the bank cover to delay any easing until after the budget.
The key event for our longer-term view is the UK budget on November 26, where we anticipate significant fiscal tightening to address a £35 billion deficit. This is reminiscent of the austerity measures we saw in the early 2010s, which ultimately prompted extended monetary easing from the BOE. The government’s tax hikes will likely slow the economy, forcing the central bank to cut rates more aggressively in 2026 than the market currently foresees.
Considering this outlook, we believe positioning for sterling weakness is the appropriate strategy. Buying GBP/USD put options with January 2026 expiries would capture the potential fallout from both the budget and the subsequent BOE policy shift. A strike price below the 1.3000 psychological level, such as 1.2850, offers a way to capitalize on a downward move.
Given the number of upcoming event risks, implied volatility on sterling options will likely increase, making outright purchases more expensive. Therefore, we would consider using put spreads, such as buying a 1.2900 put and selling a 1.2700 put. This strategy would lower the upfront premium cost while still offering exposure to a bearish outcome for the pound.
