British Pound Strengthens after Bank of England Rate Cut
The British pound strengthened to $1.3445 in the global forex markets, reaching its highest level in about two weeks, as traders reacted to the Bank of England’s latest monetary policy decision.
The Bank of England cut interest rates again on Thursday, the fifth policy easing in 2025 amidst a slowdown in economic performance. Weak UK economic data supports the decision, but the central bank also had to factor in inflation running above its 2% target.
The rate of price rises climbed to 3.6% in June, the highest it’s been since January 2024.
The decision—the fifth rate cut in the past 12 months—nearly didn’t happen, with a tight 5–4 vote on the Monetary Policy Committee. Hence the sharp upside swing in the UK currency.
The 25 bps rate cut brought the key bank rate down to 4%, its lowest level since 2023. However, the decision revealed deep divisions, and the cut was approved by a narrow 5–4 majority, following an initial vote that resulted in a three-way split.
The narrow vote margin means growing internal resistance to more cuts. Several MPC members likely fear a rebound in price pressures. It marked the first time that a second round of voting was required to reach a final decision.
Two rounds of voting were required for the first time since the Monetary Policy Committee was launched 28 years ago.
In the first round, four members voted to hold rates steady, and four backed cutting them to 4%. MPC member Alan Taylor initially favored lowering rates to 3.75%, then shifted to backing a quarter-point reduction in the second round of voting to break the deadlock.
Governor Bailey said, “Interest rates are still on a downward path, but any future cuts will need to be made gradually and carefully.” The Bank also raised its inflation forecast for September to 4% from 3.7%. In response, traders have pared back expectations for further rate cuts this year.
Markets are now pricing in just 17 basis points of additional easing in 2025, compared to another 25 bps cut anticipated before the announcement. The U.K. economy unexpectedly contracted in May—the second month in a row that it has shrunk. The unemployment rate crept up to 4.7%, from 4.6% previously. #British Pound Strengthens after Bank of England Rate Cut CBN Increases Rate on 364-Day Nigerian Treasury Bills
