| Summary The GBPUSD rose after the Bank of England held interest rates steady at 5%, with policymakers signalling caution on inflation while markets anticipate potential rate cuts in the months ahead. |
The GBPUSD exchange rate gained on Thursday after the Bank of England kept interest rates steady at 5%.
GBPUSD – Daily Chart
The price of the CH50 index was higher for two days, but the bounce from recent weakness was light on volume. A larger rebound is needed back to the 11,500 level, or further lows to 10,741 are possible.
The BoE kept its key interest rate unchanged at 5% due to ongoing concerns about inflation within the bank’s monetary policy committee. The important services sector, which accounts for around 80% of the British economy, has seen elevated prices. Figures on Wednesday showed that inflation overall in the UK remained at an annual rate of 2.2% in August, still above the bank’s goal.
Minutes of the bank’s latest meeting showed that eight out of the nine members of the panel voted to keep rates unchanged, while only one backed a quarter-point reduction.
“The economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time,” said Bank Gov. Andrew Bailey. “But it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”
The BoE is widely expected to reduce borrowing costs again at its next meeting in November, which follows the new government’s budget on October 30. The Labour government has said that it needs to plug a £22 billion pound ($29 billion) hole in the public finances and has indicated that it may need to raise taxes and lower spending. That could weigh on the near-term outlook for the British economy and put downward pressure on inflation.
The deputy chief economist at Aberdeen, Luke Bartholomew, said the Bank of England “will need to incorporate any fiscal changes in its next forecasts, which could provide the foundation for more rapid cuts in due course.”
