Bank of England Keeps Interest Rates Unchanged, Pound ​Jumps to Highest Level ‍in Two Years

The Bank of England⁣ (BOE) has announced its latest interest rate decision, voting 8:1 to maintain interest rates at 5%. This decision aligns with market ⁤expectations and ‌marks a cautious approach to future interest rate cuts.

Bank of England ​Governor Bailey stated, “We should be able to gradually⁤ lower interest rates over time.” However,‌ he‌ emphasized that this path will depend on ​continued easing​ of price pressures, and keeping inflation⁤ low is critical. As a result, policymakers must be careful not to cut​ interest rates too quickly or too much.

The meeting statement reiterated ⁤policymakers’ preference​ for interest rate decisions and ⁢the need for ‌policy to remain restrictive for a sufficiently long period. This cautious approach may ‍dampen ⁣market expectations ⁢of faster ⁤rate⁢ cuts later this year.

Following the decision, money ‌markets have reduced ⁤bets on how much the Bank of ⁢England will cut interest rates ⁣this year, with an expected rate‍ cut of 41 basis points in December, compared⁢ to 50 basis points before the decision was announced.​ UK government bond prices fell, with the ten-year bond yield rising 3 basis points to 3.88% ‌and the⁣ two-year⁤ bond yield rising 2‌ basis points to⁣ 3.92%.

Dean Turner, chief European economist at UBS, commented that the decision to keep the base rate unchanged is consistent with their long-term view that the central bank will take a cautious approach at the beginning of the interest rate cutting cycle. Turner expects the Bank of England to ​cut interest rates for the second time this year in ‍November.

Pound Exchange Rate Jumps to Highest Level in Two Years

The pound exchange rate jumped‍ 0.8% in the ​short term after the BOE ‌meeting, exceeding US$1.33 for the first‍ time since March⁢ 2022. As of writing, GBP/USD is‌ currently trading at ​1.3287, with the intraday gain slightly reduced to 0.57%.

Jordan Rochester, head⁢ of macro strategy at Mizuho International, stated, “Everything here points to a ⁣gradual rate cut ‌on a quarterly basis, at ⁢best.” He expects GBP/USD to continue⁢ performing well, with the pair expected to break above 1.34 by early October and 1.40 by the end of 2025.

The pound’s rally extends its 2024⁢ gains, making it the best-performing G10 currency so ‌far in 2024. Although the market expects the Bank ⁤of England to cut interest rates again in ⁣November,‌ UK price pressures are expected to be more persistent,⁤ and UK interest rates will remain relatively high.