The Bank of England maintained interest rates at 5.0% on Thursday, with the Monetary Policy Committee voting 8-1 to keep rates unchanged, outperforming expectations of a 7-2 vote in favor of holding rates. Only external member Swati Dhingra voted for a further quarter-point rate cut, following the BoE’s first reduction in borrowing costs since 2020 last month. This decision pushed Sterling to its highest level since March 2022, rising just above $1.3300, after trading around $1.3266 prior to the announcement. 

(GBPUSD Daily Price Chart, Source: Trading View) 

BoE Governor Andrew Bailey struck a more cautious tone, noting that wage growth remained uncomfortably high, while policymakers were divided on the pace at which long-term inflationary pressures were easing. He emphasized the importance of keeping inflation low, warning against cutting rates too quickly or too aggressively. Bailey later expressed optimism that rates would decline further but stressed that the BoE first needed more concrete evidence of cooling price pressures. 

Additionally, the BoE projected inflation to rise to around 2.5% by year-end, up from the most recent reading of 2.2%, though this increase is less than the previous month’s forecast of 2.75%. Following Thursday’s decision, investors scaled back expectations of two rate cuts by the end of 2024 but still anticipate quarter-point reductions in rates four or five more times by June. In contrast, they foresee around seven such cuts in the U.S., with a consensus forming that the BoE will lower rates at a slower pace than the Federal Reserve. 

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