The Bank of England will conclude this week's G10 central bank meetings today. Having lowered interest rates every three months this year, today would normally be the time for the next step, Commerzbank's FX analyst Michael Pfister notes.

Still room for surprise

"However, expectations have shifted since the August meeting. In recent months, uncertainties about the way forward have become increasingly apparent, with officials expressing concern about persistently high inflation. Although inflation came in lower than expected a few weeks ago, this is unlikely to be enough to justify another interest rate cut at this stage. In addition, the approaching budget is creating further risks. Accordingly, the market is now only pricing in a 25% probability of an interest rate cut, and we also expect interest rates to remain unchanged today."

"Nevertheless, the meeting is likely to be interesting. We will receive new forecasts that should provide insight into how the Bank of England assesses the future development of inflation. Voting behaviour has been highly volatile this year, so if the decision to keep interest rates unchanged is close, the market is likely to interpret this as a sign of an interest rate cut in December."

"Admittedly, this makes it more difficult to predict how the pound will react. Even if interest rates remain unchanged, the pound could suffer if a combination of new forecasts, voting behaviour and the subsequent press conference suggest that an interest rate cut has only been postponed."