The Bank of England’s decision to hold interest rates at a 15-year high has caused the pound to rise, reassuring investors that there will be no immediate rate cuts. The Bank kept borrowing costs at 5.25% and released forecasts suggesting that the British economy could potentially hover close to a recession in the coming years.
Following the announcement, the pound increased in value, rising 0.53% to $1.2214. Prior to the Bank’s decision, it was up 0.35% at $1.2193. The dollar has been weighed down by a fall in U.S. bond yields.
Meanwhile, the yield on the benchmark 10-year UK bond, also known as a Gilt, fell 14 basis points (bps) to 4.393%. This decrease in yield is a result of prices moving inversely to yields. Furthermore, Britain’s FTSE 100 stock index remained relatively stable, showing a 1.24% increase after the Bank’s decision.
The Monetary Policy Committee (MPC) voted 6-3 in favor of maintaining the Bank Rate, as was expected by economists. The Bank of England emphasized that “monetary policy is likely to need to be restrictive for an extended period of time” according to the MPC’s latest projections. The Bank also mentioned that further tightening in monetary policy will be required if there is evidence of more persistent inflationary pressure.
All eyes are now on BoE Governor Andrew Bailey’s press conference, scheduled for 1230 GMT. Investors are eagerly awaiting his insights and any additional information he may provide.
The decision by the Bank of England comes against a backdrop of global stock market rallies and a falling dollar. The Federal Reserve’s decision to hold interest rates on Wednesday, combined with the U.S. Treasury announcing lower debt issuance than anticipated, has caused U.S. bond yields to drop.
Jeremy Batstone-Carr, a strategist at Raymond James, commented on the situation, stating, “The question going forward is how long this standstill will last for – with financial markets expecting it to be a considerable period of smooth sailing.” Batstone-Carr further noted that the door for future rate hikes remains open and the MPC will continue to monitor any fluctuations and risks in the months ahead.
Overall, the Bank of England’s decision to maintain interest rates has provided some relief for investors, with the pound rising and the FTSE 100 remaining stable. The Bank’s emphasis on potentially restrictive monetary policy in the long term suggests a cautious approach to inflationary pressures. As the global economy continues to navigate uncertain times, market participants will be eagerly awaiting any further developments and information from BoE Governor Andrew Bailey’s press conference later today.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )