Breaking: BoE leaves interest rate unchanged at 5.25% as forecast


The Bank of England (BoE) announced on Thursday that it left the policy rate unchanged at 5.25% following the December policy meeting. This decision came in line with the market expectation.

Follow our live coverage of the Bank of England policy announcements and the market reaction.

Policymakers voted 6-3 in favor of the decision. Three members of the Monetary Policy Committee (MPC), Megan Greene, Jonathan Haskel and Catherine Mann, voted to raise the policy rate by 25 bps at the meeting.

In its policy statement, the BoE reiterated that the monetary policy is likely to need to be restrictive for an "extended period of time."

Key takeaways from the BoE policy statement

"The decision to increase or hold was again finely balanced."

"Will take decisions necessary to get CPI all the way back to 2%."

"Policy will need to be sufficiently restrictive for sufficiently long."

"Near-term inflation path somewhat lower than projected in November, reflecting energy prices."

"Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures."

"BoE sees inflation just under 4.5% by end of 2023 (November forecast: Q4 CPI 4.75%), around 4.75% in January, closer to 4% in February."

"BoE staff provisionally estimate November fiscal plans will boost GDP by around 0.25% in coming years."

"Fall in services inflation caused by items that may not reflect underlying trends."

"Most of MPC majority say too early to conclude services inflation or pay growth on firmly downward path."

"Measures of inflation persistence are higher in UK than in other major advanced economies."

Market reaction to BoE policy announcements

GBP/USD gathered bullish momentum and climbed to a fresh 10-day-high above 1.2700 with the immediate reaction to the BoE policy announcements.

Pound Sterling price today

The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies today. Pound Sterling was the strongest against the US Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.46% -0.68% -0.46% -0.69% -0.86% -0.30% -0.27%
EUR 0.48%   -0.20% 0.03% -0.22% -0.38% 0.17% 0.20%
GBP 0.68% 0.18%   0.19% -0.07% -0.26% 0.31% 0.35%
CAD 0.46% -0.02% -0.23%   -0.25% -0.42% 0.12% 0.17%
AUD 0.71% 0.24% 0.02% 0.25%   -0.16% 0.37% 0.42%
JPY 0.85% 0.42% 0.23% 0.45% 0.18%   0.55% 0.60%
NZD 0.35% -0.15% -0.35% -0.13% -0.38% -0.53%   0.04%
CHF 0.27% -0.19% -0.36% -0.16% -0.42% -0.60% -0.06%  

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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

 


This section below was published as a preview of the Bank of England rate decision at 07:00 GMT. 

  • The UK central bank is set to hold interest rate steady at 5.25% at the final meeting of 2023.
  • The Bank of England could push back against expectations of aggressive rate cuts next year.
  • The Pound Sterling is poised for a big reaction to the BoE policy announcements.  

In the finale of 2023, the Bank of England (BoE) is expected to keep its key interest rate unchanged for a third consecutive meeting on Thursday. The Pound Sterling (GBP) is expected to see intense volatility on the BoE policy announcements, with all eyes focusing on the United Kingdom’s (UK) central bank’s communication about the path forward on the interest rate as markets price in rate cuts in 2024.

Bank of England to extend pause into third meeting

The Bank of England is widely expected to hold the benchmark interest rate steady at 5.25% when it announces its decision at 12:00 GMT on Thursday. It’s not a “Super Thursday” as there will be no Monetary Policy Report (MPR) published nor Governor Andrew Bailey’s press conference.

With a no rate hike fully baked in this week, markets are now pricing 10% odds of a cut for the March 21 meeting, rising to nearly 45% for May 9 and nearly 90% for June 20, according to Bloomberg’s World Interest Rate Probability (WIRP).

Therefore, the language in the BoE’s policy statement is critical to gauging the interest rate outlook for next year as to when and how fast the UK central bank will cut rates. Economists and industry analysts expect the BoE to push back against expectations around rate cuts next year, especially after BoE policymakers continued to maintain a hawkish tone in their recent speeches.

BoE Deputy Governor for Markets and Banking, Dave Ramsden, said that “monetary policy is likely to be needed to be restrictive for an extended period of time to get inflation back to 2% target.” Joining the chorus, BoE policymaker Catherine Mann noted that “the prospects for more persistent inflation imply a need for tighter monetary policy.” Meanwhile, BoE Governor Andrew Bailey reiterated earlier this month that interest rates are likely to need to remain around current levels.

Rabobank’s macro strategists project the first reduction in the UK’s bank rate to take place in November 2024. “We believe the MPC will want to see compelling evidence that labor market conditions have eased in a meaningful way and that domestically generated inflation pressures have clearly cooled before starting to loosen their policy stance,” they said.

Data published by the Office for National Statistics (ONS) on Tuesday showed that the UK’s wage growth slowed in the quarter to October. However, pay growth continued to increase at a quick pace, something that could dissuade the BoE from cutting rates anytime soon.

Average Earnings excluding Bonus in the UK rose 7.3% 3M YoY in October versus September’s 7.8% increase and below 7.4% expected. Additionally, services inflation also remains very high, at 6.6%.

Meanwhile, UK economy shrank by more than expected 0.3% in October, as higher interest rates continue to squeeze household spending, the ONS data showed on Wednesday. The data, however, is unlikely to lead the BoE to signal that it is close to cutting rates, yet.

How will the BoE interest rate decision affect GBP/USD?

If the Bank of England shifts gear toward a dovish tone, acknowledging the gloomy economic outlook, GBP/USD could come under intense selling pressure. Further, a dovish vote split could also weigh on the Pound Sterling, as it would add credence to the current market pricing of rate cuts next year. Conversely, the pair’s recovery could gain momentum should the BoE stick to its hawkish rhetoric, supporting the narrative of a “higher for longer” view on interest rates.  

At its November meeting, policymakers voted 6-3 in favor of the extended pause decision. Megan Greene, Jonathan Haskel and Catherine Mann voted to raise rates by 25 basis points (bps).

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “Having found support once again at the critical 200-day Simple Moving Average (SMA) at 1.2495, GBP/USD is extending the recovery momentum. The-day Relative Strength Index (RSI) remains positioned in the bullish territory, implying more gains in the offing.”

Dhwani also outlines important technical levels to trade the GBP/USD pair: “On the upside, Pound Sterling buyers could target the static resistance near 1.2730 on a hawkish BoE pause, above which the next barrier is seen at the 1.2800 round level. Conversely, the immediate support aligns at the 21-day SMA at 1.2581, below which a test of the 200-day SMA at 1.2495 will be inevitable.”

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD holds above 1.0900 after upbeat Eurozone sentiment data

EUR/USD holds above 1.0900 after upbeat Eurozone sentiment data

EUR/USD trades marginally higher on the day above 1.0900 in the European session. The data from Germany and the Eurozone both showed that ZEW Survey - Economic Sentiment improved more than expected in October, helping the Euro hold its ground.

EUR/USD News
GBP/USD clings to recovery gains below 1.3100 after UK data

GBP/USD clings to recovery gains below 1.3100 after UK data

GBP/USD clings to recovery gains below 1.3100 in European trading on Tuesday. The data from the UK showed that the ILO Unemployment Rate declined to 4% in the three months to August, with Employment Change rising 373K, but failed to deter Pound Sterling.

GBP/USD News
Gold price remains depressed amid smaller Fed rate cut bets; lacks follow-through selling

Gold price remains depressed amid smaller Fed rate cut bets; lacks follow-through selling

Gold price ticks lower for the second straight day amid smaller Fed rate cut bets and a bullish USD. Signs of a slowdown in China – the biggest bullion consumer – further undermine the XAU/USD.

Gold News
Canada CPI set to show easing price pressures in September ahead of BoC decision

Canada CPI set to show easing price pressures in September ahead of BoC decision

The Canadian Consumer Price Index is expected to rise 1.8% YoY in September. The Bank of Canada has reduced its policy rate by 75 bps so far this year. The Canadian Dollar has been losing considerable ground in October.

Read more
RBA widely expected to keep key interest rate unchanged amid persisting price pressures

RBA widely expected to keep key interest rate unchanged amid persisting price pressures

The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.

Read more
Five best Forex brokers in 2024

Five best Forex brokers in 2024

VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals. 

Read More

Forex MAJORS

Cryptocurrencies

Signatures