Trading The British Pound In 2025: What To Know

The British pound and the UK economy are at the front page of every financial media outlet. Especially in the last two years, the UK economy has struggled to adjust to elevated interest rates and rising international competition. As a result, the British pound has faced headwinds, sometimes losing ground against other major currencies such as the euro and the US dollar.

Will there be a “new year, new me” for the British pound and the UK economy or we will just see the continuation of a slide, especially when the new US President Donald Trump is ready to impose tariffs on imports? In this blog, we will share some information regarding the outlook for the first months of 2025 that we think you might find useful when building your financial plans.

Bank of England Interest Rates In 2025

Like other major central banks such as the Federal Reserve (Fed) and the European Central Bank (ECB), the Bank of England (BoE) has embarked on its quest to lower interest rates and make it easier for borrowers to execute their financial plans. The next BoE interest rate meeting is due on February 6th.

The BoE cut interest rates in August and November 2024 with the benchmark rate falling to 4.75%, after hitting 5.25% in summer 2024 and registering a 16-year high. In its last meeting before Christmas, the central bank’s Monetary Policy Committee (MPC) refrained from delivering one more cut since inflation reports during autumn were “hotter” than needed.

The Organisation for Economic Co-operation and Development (OECD) 2025 forecast suggested that “monetary policy is assumed to continue easing until early 2026, with Bank Rate gradually coming down to 3.5% from its current level of 4.75%, as inflation continues converging towards target.”

ING’s analysts seem to agree in their December 16th report that the BoE will gradually reduce borrowing costs. “What’s more, financial markets think we’ll get barely three more cuts in 2025. So far, the BoE has done little to persuade investors otherwise. From the little communication we’ve had from officials over recent weeks, it seems broadly happy with a base case that sees rate cuts continue once per quarter over the next year,” they wrote in their note to investors.

UK Inflation Falls But Still Above BoE Target

The latest report by the Office for National Statistics (ONS) showed that UK CPI inflation dropped 2.5% in December, slightly lower than the 2.6% figure registered in November. It should be noted that the BoE’s governing board inflation target is 2%.

The December report surprised market analysts, lending some support to some analysts’ view that rates could fall further and faster than markets expect.

One of the largest contributors to high inflation figures in the UK is services inflation, which also came in lower than expected. Speaking to The Guardian, Goldman Sachs analysts said that “the decline in closely watched services inflation, from 5% to 4.4%, reinforces our view that the monetary policy committee is likely to cut Bank rate in February.”

Despite inflation dropping in December 2024 closer to the central bank’s 2% target, some economists express the opinion that the CPI could rise to 3% again during 2025. A note published by the UK’s LSE said that “public wage increases, well in excess of the rate of inflation, trigger additional increases in private wages, and consequently higher inflation a year later. Some of the impact of higher public sector wages on inflation is already taking effect but the full effect will be felt all the way up to the summer of 2025. All the above seem to imply that  UK inflation will continue to rise much above the two per cent target throughout 2025.”

Another report released by Capital Economists noted that “we think a fall in CPI inflation to below 2.0% in 2026 will prompt the Bank of England to cut interest rates from 4.75% now to 3.50% by early 2026, rather than to 4.25% as investors anticipate.”

British Pound Faces Market Turbulence

The British pound is no exception to the UK economic struggles. The pound hit a 5-month low against the euro on January 20th as economists raised their expectations of an interest rate cut on February 6th. MPC members such as Alan Taylor suggested that the BoE could move forward with four rate cuts during 2025.

On January 13th, the British pound fell to a 14-month low against the US dollar, pressed by bond market turbulences and weak reports coming from the UK economy. Sterling has lost approximately 4% of its value against the US dollar since the beginning of 2025. 

HSBC analysts suggested that the British pound will likely not be able to match the 2025 forecasts for trading around $1.26 saying that it would be “notably optimistic to us.” ING’s economists have doubts over the pound’s strength saying that economic updates in the UK don’t work in favour of the British currency. The Dutch bank’s economists noted in a report on January 21st that “the implications for the UK fiscal/monetary mix are sterling negative. As above, it looks like the Chancellor will probably have to tighten fiscal policy – a move that should push on the open door of a market underpricing this year’s BoE easing cycle. We have recently cut our sterling forecasts and now see EUR/GBP ending the year at 0.85 and 1.19 respectively. If anything, those downside sterling adjustments may be too conservative.”

Trading The British Pound With Admiral Markets

When you open a live account with Admiral Markets, you can trade the British pound against several other currencies. These include major currency pairs like EUR/GBP, GBP/USD, and GBP/JPY among others. This extensive selection caters to traders seeking both diversification and targeted strategies.

Trading currency pairs and CFDs requires a strong grasp of market principles to navigate effectively. For those new to the financial markets, Admiral Markets provides an array of educational resources, including e-books, step-by-step guides, and interactive webinars. These tools are designed to build foundational knowledge, helping traders understand price movements, market behaviour, and trading strategies.

Mastering the use of key risk management tools, such as stop-loss and take-profit orders, is also essential. These features allow traders to limit losses, even in volatile market conditions. With practical application, traders can build the confidence needed to navigate the fast-paced world of trading while maintaining control over their investment decisions.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.