The Bank of England held Bank Rate at 3.75% on a 6-3 vote on Thursday, with Governor Andrew Bailey saying the outlook was too uncertain to judge market bets on four rate hikes over the next year. Sterling pared part of its initial decline as Brent crude dropped, pulling the Dollar back from its post-FOMC highs.
The Bank of England held Bank Rate at 3.75% by a 6-3 vote on Thursday, and Governor Andrew Bailey said the outlook was too unpredictable to judge whether markets were right to price in almost four interest rate hikes over the next year. He added that officials had not discussed that prospect at their meeting.
Bailey Calls Four-Hike Pricing Too Uncertain
According to Reuters: "we did not discuss the prospect of raising interest rates four times," Bailey told broadcasters after the decision. He said markets have to reach their own view, but that the situation is too unpredictable at the moment to endorse it. Bailey has weighed in on rate expectations before, telling Reuters in April that markets were getting ahead of themselves on multiple hikes, and in July calling a later hike far from certain.
Sterling Recovers as Oil Slips
External MPC members Megan Greene and Catherine Mann and Chief Economist Huw Pill again voted for an immediate 25 basis-point increase to 4.00%, while Bailey and Deputy Governors Sarah Breeden, Clare Lombardelli and Dave Ramsden held rates but flagged that persistent energy pressure or second-round effects could still strengthen the case for tightening inflation further. The BoE now expects inflation to reach around 3.75% in Q4 and slightly exceed 4% in early 2027.
That conditional hawkishness put a floor under Sterling. Dollar weakness did the rest as Brent crude fell more than 3% below $103 and WTI dropped around 2.8% to $99.5, pulling DXY away from levels above 100.3. Momentum has yet to confirm a full GBP/USD reversal, leaving the move better described as a recovery from the decline than a new bullish breakout.
Gilt Sales Wound Down
Earlier Thursday, the BoE outlined plans to halt sales of long-dated gilts entirely and pause active gilt sales for the next six months. Bailey said conditions in the gilt market, where yields for 30-year bonds this week hit their highest level since 1998, had not factored into the announcement, adding that the work was planned well before the Middle East conflict broke out and is not a reaction to market conditions.
The bank's next move on rate hike pricing will depend on whether energy costs keep feeding into wages and services prices.
Sources: Investing.com, ActionForex
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