Sterling eked out small gains during yesterday’s trading session, after the Bank of England voted to hold interest rates at 4%, as was expected. The nine-member committee voted 5-4 in favour of leaving borrowing costs unchanged, in the face of higher inflation over recent months. The BoE said it expects inflation to have peaked and forecast a return to their 2% target in two years’ time, but warned growth remains weak and unemployment is rising.
Governor Bailey stated rates are "on a gradual path downwards" but stressed the MPC need to see more information on inflation and the outcome of the upcoming budget before cutting interest rates again.
Elsewhere the USD pulled back from recent highs after a weaker than forecast private payroll report from Challenger, Gray & Christmas, Inc showed employers cut more than 150k jobs in October which was in stark contrast to the recent strong ADP report.
*Daily move - against G10 rates as of 06:00 GMT, 07.11.25
** Indicative rates - interbank rates as of 06:00 GMT, 07.11.25
The 5-4 vote in favour of leaving interest rates unchanged highlighted the divergence amongst the committee members, which is of no surprise given the UK has the highest inflation rate amongst the G7 - standing at 3.8%, it’s uncomfortably above the Bank's mandated 2% target, whilst growth is stagnating.
This makes the next MPC meeting very difficult to call and Governor Bailey stressed the need for more information on the upcoming budget and inflation.
The much-rumoured tax rises, if delivered, by Chancellor Reeves would be perceived by the BoE as a pseudo tightening of monetary policy and would allow the Bank to cut rates at its December meeting.
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