British Pound Gains as Bank of England Holds Rates in 6-3 Vote

The British pound strengthened against the U.S. dollar on Thursday after the Bank of England held its key interest rate steady, with a split vote among policymakers revealing persistent concerns about inflation. The move came amid broad-based dollar weakness following the U.S. Federal Reserve's latest policy meeting.

As of 12:17 GMT, the GBP/USD currency pair traded at 1.3386, an increase of 0.30% for the day, according to Investing.com data.

Bank of England Holds Rates in Split Decision

The Bank of England's Monetary Policy Committee (MPC) voted 6-3 to maintain its benchmark rate at 3.75%, a decision that was widely anticipated by markets. The three dissenting members favored a 25 basis-point increase to 4.00%, according to the bank's statement.

BoE Governor Andrew Bailey acknowledged that inflation had "fallen faster than we’d expected" but cautioned that rising energy costs, driven by conflict in the Middle East, could push prices higher again later this year. He stated the MPC's objective is to ensure any such increase proves "temporary."

With UK inflation currently at 2.6%, policymakers judged the current policy rate to be "about the right level," the bank said, noting that high borrowing costs and a softer labor market are curbing wage pressures.

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Market Reaction and Outlook

Analysts at ING, who had expected a narrower 7-2 vote to hold, said in a note that they expect sterling to "gradually weaken" as expectations for further UK monetary tightening fade. They see the EUR/GBP exchange rate potentially targeting a run at the 0.8600/8610 level.

The pound's gains were also supported by a softer U.S. dollar. The dollar has remained under pressure since the Federal Reserve's policy meeting on Tuesday left investors uncertain about the central bank's commitment to further rate hikes.

"The conclusion was that the Fed was not going to be as tough on fighting inflation as initially thought," said Chris Turner, Global Head of Markets at ING. Investors are now awaiting key U.S. data, including core PCE inflation and second-quarter GDP, for further clues on the Fed's path.