By James Caley
As we wrap up this spooky week, the Bank of England’s monetary policy committee has chosen to maintain the interest rate at 5.25% for the second consecutive term. This decision came as no surprise to economists, following nearly two years of aggressive rate hikes.
The committee’s vote, however, was not unanimous. Three out of the nine members supported another rate increase, citing the need to combat continued high inflation figures. In yesterday’s speech, Governor Andrew Bailey confirmed that the rate of price rises is slowing, and attributed this to the sustained high-interest rates. He also confirmed we should not expect and reductions in interest rates for the foreseeable future.
Inflation, which peaked at 11% in 2022, receded to 6.7% in September. The impact of maintaining the 5.25% rate on the current forecasted inflation rate, currently standing at 4.9%, will be known after November 15th. This rate aligns closely with the Prime Minister’s target to halve inflation by the end of the year.
The Bank of England’s Monetary Policy Committee has not dismissed the possibility of further interest rate hikes should their targets remain unmet. They remain steadfast in their commitment to achieving the 2% inflation target, emphasising that any downward adjustments are unlikely until this ambitious goal is met next year.
So, what does this decision mean for the Pound?
Despite yesterday’s positive announcement for investors, the Pound displayed minimal movement against the Euro. It continued to hover within its 1-cent trading range, which it has maintained for the past ten days.
Against the Dollar, the Pound displayed a slight uptick following the announcement, reaching its peak for the week. However, the sustainability of this strength remains uncertain. GDP growth forecasts suggest marginal expansion in the final quarter of this year, upcoming Halifax House price data is expected to indicate further declines and the ongoing challenges in the Middle East may well lead to additional energy cost increases, all of which contribute to a less optimistic outlook.
In the context of currency markets, investors and traders are closely monitoring these developments, looking for signals of potential future movements. The decision to maintain interest rates reflects the cautious approach taken by the Bank of England to address inflation and its commitment to achieving a stable and manageable economic environment.
If you have an upcoming currency requirement but find yourself concerned about market volatility don’t hesitate to get in touch with your currency consultant for some expert advice and friendly guidance.