Story
Bank of England Holds Rates; Pound Sterling Declines on Cautious Outlook
Summary
The British pound weakened against the U.S. dollar after the Bank of England kept interest rates unchanged. Investors weighed a hawkish inflation forecast against a cautious policy statement and persistent dollar strength.
The British pound fell on Thursday after the Bank of England held interest rates steady, as traders interpreted the accompanying policy minutes as cautious despite the central bank's upgraded inflation forecasts. The move came amid broad-based strength in the U.S. dollar following a recent hawkish signal from the Federal Reserve.
BoE Keeps Rates on Hold, Cites Inflation Risks
The Bank of England’s Monetary Policy Committee (MPC) maintained its key interest rate in a decision that was widely expected. However, the vote was split, with three members voting for an immediate rate hike, according to the meeting minutes cited by Investing.com.
The committee flagged that inflation risks were "tilted further to the upside" since July, largely driven by higher energy prices. In response, the BoE revised its inflation projections higher:
- The Consumer Price Index (CPI) is now expected to reach approximately 3.75% in the fourth quarter of 2026.
- CPI is forecast to rise above 4% in early 2027, up from 3.1% in August.
The MPC also voted unanimously to continue its quantitative tightening program, planning to reduce its government bond (gilt) holdings via £20 billion in annual sales.
Market Reaction and Interpretation
AdIn the aftermath of the decision, sterling weakened against the U.S. dollar. The GBP/USD currency pair fell 0.23% to trade at 1.3350, as reported by Investing.com at 07:20 ET.
The pound's decline occurred even as UK equities rallied, with the FTSE 100 index gaining 0.7%. This divergence suggests that currency markets viewed the BoE's overall message as less aggressive than the inflation warnings alone would indicate, possibly reflecting concerns about the UK's economic growth outlook.
Dominant Dollar Sets Broader Tone
The pound's performance was also heavily influenced by the strength of the U.S. dollar, which has been buoyed by a hawkish stance from the Federal Reserve. Projections from 12 of 18 U.S. policymakers indicate at least one more rate hike this year.
According to the source, markets are pricing in 32 basis points of U.S. rate increases by December. Francesco Pesole, an FX strategist at ING, told Investing.com that risks for the U.S. dollar "remain tilted to the upside in the near term," a sentiment that continues to weigh on other major currencies like sterling.
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