Sterling Update: Bank of England Holds Rates Steady, Hints at Potential Cuts Ahead

Here’s the latest currency news from our partner Moneycorp, to help you find out what your money is worth.

GBP

The Bank of England made its second rate decision of the year at midday yesterday, deciding to keep rates steady for the fifth time. Markets had predicted a less than 1% chance of a rate cut.

The most notable outcome of the meeting was the Monetary Policy Committee’s two most hawkish members changing their votes from a hike to a pause, leaving the vote 8-1 in favour of holding rates, with one member voting for a cut. Afterwards, at the press conference, Andrew Bailey commented that rate cuts are “in play” for the upcoming meetings in May and June.

This came after UK inflation came in below expectation earlier in the week. Markets anticipated inflation to fall to 3.5% from last month’s reading of 4.0% but decelerated faster than expected to 3.4%. BoE and OBR have forecasted inflation could briefly drop to 2% in the spring before moving back up.

The more dovish split saw the pound fall against the dollar, with GBP/USD moving below 1.2750 in the immediate aftermath of the meeting.

Other key data out this week were the UK’s Manufacturing and Services PMIs and the latest Retail Sales. The PMI data was released on Thursday, with Services coming in below expectation at 53.4, from 53.8 last month. Manufacturing was forecast to rise marginally from last month’s reading of 47.5 to 47.9 but came in above expectation at 49.9. The UK’s Retail Sales came in above expectation at 0.0%. Markets had anticipated a significant drop in February’s data from 3.6% in January to -0.4%.

EUR

The latest CPI Inflation figures from the European Union came in as expected earlier this week, with Final CPI at 2.6% and Final Core CPI at 3.1%. These figures also marked no change from last month’s reading.

President Lagarde spoke on Wednesday following commentary from two other European Central Bank members indicating that a June cut could be likely. Lagarde stated that the ECB would be unable to commit to a particular path of interest rate cuts once it starts to ease monetary policy.

French, German and Eurozone Manufacturing and Services PMIs also came out Thursday morning. Markets expect rising figures across the board, with French Manufacturing and Services readings coming in below expectation, falling from 47.1 to 45.8 and 48.4 to 47.8, respectively. German Manufacturing also came in below expectation, dropping from 43.1 to 41.6, and Services came in ahead of forecasts, increasing from 48.3 to 49.8. These readings contribute to the overall

Eurozone data. The Manufacturing PMI came in below expectation, falling from 46.5 to 45.7 and Services was ahead of expectation, increasing from 50.2 to 51.1.

The Euro Summit is also taking place in Brussels at the end of this week, which sees heads of state or governments of the euro area countries, the Euro Summit President and the President of the European Commission meet to give guidance on the region’s economic policy.

Disclaimer: This commentary does not constitute financial advice.