Pound sterling price trades cautiously as BoE Bailey warns of sluggish UK economic outlook
A GBP/USD chart showing recent price movement with support and resistance levels
The British Pound (GBP) is trading with caution against major currencies as investors digest the Bank of England (BoE) Governor Andrew Bailey’s warning of a sluggish UK economic outlook. While inflation figures for January came in higher than expected, the central bank remains cautious about aggressive policy easing, dampening the GBP/USD rally.
The UK Consumer Price Index (CPI) for January showed a year-on-year increase of 3%, surpassing expectations of 2.8% and higher than December’s 2.5%. The core CPI, which excludes food, energy, alcohol, and tobacco, also rose to 3.7%, compared to 3.2% in December. However, Governor Bailey downplayed the inflation spike, attributing it to volatile energy prices rather than persistent price pressures.
Despite higher inflation, the BoE recently cut interest rates by 25 basis points (bps) to 4.5% on February 6. However, the bank remains cautious, suggesting that further rate cuts will depend on economic conditions. Bailey emphasized that while inflation might remain elevated in the short term, the economy’s sluggish growth and softening labor market could limit long-term price pressures.
GBP/USD price dynamics (Dec 2024 - Feb 2025) Source: TradingView.
GBP/USD remains steady ahead of key data
The GBP/USD pair edged higher to 1.2610, marking a 0.18% gain from the previous session’s 1.2587. However, traders remain cautious ahead of UK Retail Sales data for January and the flash S&P Global UK/US Purchasing Managers’ Index (PMI) report for February, both scheduled for Friday. These figures will provide further insight into consumer demand and business activity, influencing the BoE’s future policy stance.
Meanwhile, the Federal Open Market Committee (FOMC) minutes, released on Wednesday, revealed concerns over persistent inflation risks in the United States (US), reducing expectations of immediate interest rate cuts by the Federal Reserve. With the BoE and Fed both adopting a cautious approach, GBP/USD traders will closely monitor macroeconomic data for further clues.
Outlook: GBP/USD at risk of pullback
Despite short-term gains, analysts expect GBP/USD to trade around 1.23 by the end of Q1 2025 if the UK economic slowdown intensifies. A drop below 1.2580 could reinforce bearish sentiment, while resistance near 1.2650 will be critical for further upside momentum.
Our prior analysis suggested BoE’s cautious stance could limit GBP/USD upside, despite rising inflation. With upcoming UK retail sales and PMI data, market participants should remain alert to potential volatility in Sterling pairs.
