Pound Steadies at $1.35 as U.K Rates Cut Confidence Cracks
Ahead of the Bank of England (BoE) interest rates decision next week, the British pound held near $1.35, little changed from last week’s levels, after fresh data signalled a weak start to the third quarter.
UK gross domestic product (GDP) stagnated in July as expected, but industrial production unexpectedly fell 0.9%, suggesting that tax hikes and tariffs are weighing on households and businesses.
The release comes as Chancellor of the Exchequer Rachel Reeves prepares to announce further tax increases in November to plug a new multibillion-pound budget gap. The Bank of England is set to decide on monetary policy next week, with no changes in interest rates anticipated after its August cut.
“We expect the Bank of England’s Monetary Policy Committee (MPC) to maintain Bank Rate at 4.00% at its September meeting. This outcome is fully priced by markets and in line with consensus expectations.
“We anticipate yet another split vote, with Dhingra and Taylor likely to advocate for a 25bp cut, reflecting their assessment of increasing slack in the labour market”, Stefan Koopman Senior Macro Strategist RaboResearch said in a preview obtained by MarketForces Africa analysts.
Sticky inflation remains a spoiler, even as labour market slack increases. Stephan wrote that A 25 basis points cut in November remains the firm’s base case, but our conviction is slipping.
A number of analysts attention has shifted to the central bank’s November 6 meeting, which falls just ahead of the budget, with many market participants still expecting another rate reduction.
The UK continues to face the highest sovereign borrowing costs in the G7, reflecting persistent market unease over the macro-fiscal outlook.
Investor concerns are concentrated on the risk of inflation persistence, as flagged by several MPC members, the rising burden of unfunded public debt, and widespread scepticism that productivity-led growth will sufficiently offset the first two risks.
Headline inflation has more than doubled over the past year, largely reflecting the lagged pass-through of regulated energy prices in the UK’s CPI basket.
The BoE’s hawkish pivot in August has certainly played a big role here – preserving sterling as one of the few currencies still paying 4% per annum in one-week deposits, ING said in a note.
Analysts said BoE looks unlikely to turn more dovish at the September meeting, and this should not present a downside risk to sterling. #Pound Steadies at $1.35 as U.K Rates Cut Confidence Cracks
