GBPUSD
Bank of England (BoE):
On May 7, 2025, the BoE cut its Bank Rate by 0.25 percentage points to 4.25% (from 4.5%), with a narrow 5–4 vote. Two members wanted a larger cut, while two preferred no change. The decision reflects progress on disinflation and a slowing UK economy, though the rate remains in restrictive territory to keep inflation pressures in check.
Federal Reserve (Fed):
The Fed held its policy rate steady at 4.50% in May 2025, as it weighs sticky inflation against cooling growth. The U.S. labor market remains resilient, but GDP contracted slightly in Q1. The Fed is cautious, with markets not expecting cuts until later in the year.
Differential:
The U.S. maintains a 25 basis point rate advantage over the UK (Fed 4.50% vs. BoE 4.25%). This modest but widening gap, combined with the Fed’s more hawkish stance, generally supports the USD over GBP.
Upcoming UK Economic Data in May 2025
GDP Growth:
UK GDP growth has slowed since mid-2024. Four-quarter growth is projected to stay just above 1% before picking up later in the forecast period. Goldman Sachs forecasts UK GDP at 1.2% for 2025, below the BoE’s 1.5% projection, with quarterly growth expected to remain subdued.
Inflation:
March CPI inflation fell to 2.6% (from 2.8% in February), but is expected to temporarily rise to 3.5% in Q3 2025 due to energy price effects before falling back toward the 2% target.
Domestic price and wage pressures are easing, but household inflation expectations have risen recently.
Labor Market:
The UK labor market continues to loosen, with slowing pay growth expected through the year. This supports the case for further BoE easing if disinflation persists.
Other Data:
Retail sales, business investment, and export growth remain weak, partly due to global trade developments and a tightening fiscal stance.
The next key data releases in May will be GDP, CPI, and labor market figures, all closely watched for signs of further economic softening or inflation surprises.
The interest rate differential favors the USD, especially with the BoE starting to cut and the Fed holding steady.
Upcoming UK data (GDP, CPI, labor market) will be crucial. If UK growth and inflation slow faster than expected, the BoE may cut more aggressively, adding to GBP downside.
Consensus forecast: GBPUSD is expected to remain under pressure in May.
In summary:
The GBPUSD pair faces a modest downside bias in May 2025, driven by a slight USD rate advantage, a dovish BoE, and subdued UK growth and inflation data. Key economic prints this month-especially on inflation and labor-will determine whether the BoE accelerates cuts, which would further weigh on sterling
