GBP/USD rises as BoE surprises with unanimous rate hold amid inflation concerns

GBP/USD edges higher amid cautious divergence between central banks.
The Bank of England keeps its key rate unchanged and surprises with a unanimous vote.
Geopolitical tensions and rising energy prices complicate the inflation outlook.

Ghiles Guezout FXStreet

GBP/USD trades around 1.3300 on Thursday at the time of writing, up 0.28% on the day, supported by a mildly positive market reaction to the Bank of England (BoE) monetary policy decision.

The Bank of England left its bank rate unchanged at 3.75% at its March meeting, in line with expectations, but the unanimous vote from all nine members of the Monetary Policy Committee (MPC) surprised markets, which had anticipated some support for a rate cut. The decision is seen as slightly hawkish, especially as rate hike expectations for this year have been revised higher following the announcement.

In its statement, the central bank highlights uncertainty linked to the conflict in the Middle East, which is driving energy prices higher and is expected to push inflation up in the coming quarters. Internal projections point to inflation around 3% in the second quarter and up to 3.5% in the third quarter, well above the 2% target. However, the BoE stresses that growth remains weak, with Gross Domestic Product (GDP) estimated between 0.1% and 0.2% in the first quarter, complicating the balance between supporting the economy and fighting inflation.

The overall tone reflects a pause in the easing cycle, with policymakers preferring to assess the scale and duration of the energy shock before adjusting policy. BoE Governor Andrew Bailey signals that the economy still has spare capacity, suggesting that inflationary pressures could be partly contained if demand remains subdued.

At the same time, the Federal Reserve (Fed) is also adopting a wait-and-see stance, as the central bank kept rates in the 3.50%-3.75% range on Wednesday, while signaling that inflation risks persist. Chair Jerome Powell emphasized the need for further progress on inflation before considering any rate cuts, reinforcing a higher-for-longer narrative.

This cautious stance on both sides of the Atlantic limits strong directional moves in GBP/USD. However, the slightly hawkish surprise from the UK, combined with stable but still restrictive expectations in the US, provides modest support to the Pound Sterling (GBP) in the near term, in an environment shaped by geopolitical and energy-related uncertainties.

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

Economic Indicator

BoE MPC Vote Rate Unchanged

Interest rates are set by the Bank of England’s (BoE) Monetary Policy Committee (MPC). The MPC sets an interest rate it judges will enable the BoE’s inflation target to be met. It is comprised of nine members – the Governor, the three Deputy Governors, the Bank's Chief Economist and four external members appointed directly by the Chancellor. Investors look at each member’s vote in order to seek cues over how unanimous was the decision on interest rates.

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