BoE interest rate expected to stay unchanged as focus shifts to policy outlook, vote split
- The Bank of England is expected to hold the interest rate at 3.75% for a fifth straight meeting on ‘Super Thursday’.
- All eyes are on the BoE Monetary Policy Report, the MPC vote split and Governor Bailey’s words.
- The British Pound’s next directional move hinges on the BoE event risk.
The Bank of England (BoE) is on track to keep the benchmark Bank Rate steady at 3.75% for the fifth straight meeting on Thursday, despite the renewed surge in Oil prices in July and a leadership change in the United Kingdom (UK).
With no rate change decision widely expected, the Monetary Policy Committee (MPC) policymakers are seen voting 7-2 to leave rates unchanged at the July monetary policy meeting, the same as that seen in June.
Since it’s a “Super Thursday”, the Monetary Policy Report (MPR) and the Minutes of the meeting due to be published alongside the policy statement at 11:00 GMT will be closely scrutinised for fresh policy cues. BoE Governor Andrew Bailey’s press conference will follow at 11:30 GMT.
The British Pound’s (GBP) next directional move will likely be driven by the UK central bank’s policy announcements.
Will the Bank of England keep the door open to a rate hike later this year?
Back in June, the BoE decided to stand pat on rates after United States (US) President Donald Trump signed a deal with Iran to end the Middle East conflict, a development that Governor Andrew Bailey said he was "very encouraged" by but that would not stop British inflation from rising further.
Subsequently, data released by the Office for National Statistics (ONS) showed that the UK annual Consumer Price Index (CPI) inflation eased to 2.6% in June, down from 2.8% in May and below market expectations of 2.7%. The slowdown in inflation was mainly due to a brief de-escalation in the Iran war, which reduced fuel prices throughout June.
Meanwhile, the UK labor market offered mixed signals, with the Unemployment Rate remaining unchanged at 4.9% in the three months to May, compared to an uptick to 5% expected, and annual Average Earnings including Bonuses slowing to 4.3% compared to an increase to 4.5% expected.
This combination could ease pressure on the BoE to hike rates in the coming months.
However, the resumption of hostilities in the Gulf earlier in July reignited inflation concerns worldwide as Brent Oil prices rallied back to the $100 mark.
Against prospects of inflation staying firmly above the central bank's 2.0% target, signs of a cooling economy and a tough fiscal path ahead for Britain’s new Prime Minister (PM) Andy Burnham, the BoE is expected to stick to its wait-and-see rhetoric at this week’s policy announcement.
The latest Reuters survey showed a firm majority of respondents (58 of 70) saw the Bank Rate at 3.75% through 2026. Meanwhile, “the swaps curve implies 75 basis points (bps) of tightening to 4.50% in the next twelve months,” according to analysts at BBH. This highlights the divergence between economists' expectations and current market pricing.
That being said, the BoE’s updated inflation and growth projections in the Monetary Policy Report could also hint at a possibility of a rate hike late this year, especially as inflation risks remain elevated.
How will the BoE interest rate decision impact GBP/USD?
The GBP remains under pressure near 4-week lows around 1.3300 against the US Dollar (USD) amid guarded optimism following the latest pause in the strikes between the US and Iran.
If the BoE maintains its cautious tone and Governor Bailey offers little indication of tightening, while the MPC vote split meets expectations, the British Pound could come under renewed selling pressure. In that scenario, GBP/USD may turn lower toward the 1.3250 area.
On the other hand, if the BoE emphasizes persistent inflation risks, revises its inflation forecasts higher, and signals that a rate hike remains a realistic possibility later this year, Sterling could reignite a recovery rally. A vote-split showing more than two policymakers favoring a rate hike could revive rate hike bets for this year, potentially lifting GBP/USD toward the 1.3500 psychological level.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for GBP/USD:
“The pair is keeping a bearish near-term bias as it holds below the 50-day, 21-day, 100-day and 200-day simple moving averages (SMAs) clustered between roughly 1.3360 and 1.3400. The 14-day Relative Strength Index (RSI) around 43 suggests soft, but not extreme, downside momentum, hinting that GBP/USD remains a ‘sell-the-rally’ trade on the daily chart.”
On the topside, initial resistance appears at the 50-day SMA near 1.3362, followed by the 21-day SMA at 1.3373, with the broader bearish cap reinforced near 1.3400, the confluence of the 100-day and 200-day SMAs. Conversely, the initial downside could be supported by the 1.3250 psychological level, below which a fresh downtrend could initiate toward the June 24 low of 1.3140,” Dhwani adds.
Pound Sterling Price This Month
The table below shows the percentage change of British Pound (GBP) against listed major currencies this month. British Pound was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.25% | -0.76% | 0.65% | -0.97% | -0.59% | -2.35% | 0.94% | |
| EUR | 0.25% | -0.47% | 0.88% | -0.76% | -0.31% | -2.16% | 1.20% | |
| GBP | 0.76% | 0.47% | 1.40% | -0.28% | 0.18% | -1.69% | 1.68% | |
| JPY | -0.65% | -0.88% | -1.40% | -1.65% | -1.30% | -3.11% | 0.25% | |
| CAD | 0.97% | 0.76% | 0.28% | 1.65% | 0.36% | -1.45% | 1.94% | |
| AUD | 0.59% | 0.31% | -0.18% | 1.30% | -0.36% | -1.85% | 1.53% | |
| NZD | 2.35% | 2.16% | 1.69% | 3.11% | 1.45% | 1.85% | 3.42% | |
| CHF | -0.94% | -1.20% | -1.68% | -0.25% | -1.94% | -1.53% | -3.42% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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