Sterling Update: Interest Rates Cut to an 18-Month Low

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

GBP

Although movement has been quick as the markets react to Trump’s policy announcements, GBP/USD has been hovering at the 1.24 interbank level. The UK is viewed as a potential trade ally as it is avoiding Trump’s tariffs, which are currently benefitting the Pound. How long will this last, with the EU also applying pressure on the UK to stand in their corner if Trump’s tariffs begin to encompass the bloc? This is a complex situation that should be monitored, particularly following the Bank of England’s adjusted outlook for UK growth.

The Bank of England cut interest rates last week to an 18-month low of 4.5%, which was widely expected given price rises in the UK continued to slow and left the GBP losing value. This comes despite expectations of an increase in inflation later this year to around 3.7% as consumers navigate a higher energy price cap, increased travel expenses and a rise in water bills. The belief is that this price rise will be temporary or an “upward blip” according to Huw Pill, the Bank of England’s chief economist. 

The BoE Governor Andrew Bailey also spoke this week when he warned against making a trade-off between economic growth and financial stability. His comments are thought to be in response to Chancellor Rachel Reeves’ push to loosen regulation introduced after the 2008 financial crash.

The economic outlook from the BoE is bleak, with expected UK economic growth halved to 0.75% after it has been flatlining since March 2024. Reduced demand and both the confidence of businesses and consumers after Rachel Reeves’ budget appeared to be having an impact as caution around spending creeps in. 

The latest GDP data was released on Thursday, coming in above forecast at 0.4%, after it was expected to sit at 0.1% for December. The Chancellor said while growth is higher than expected, she was “still not satisfied”.

EUR

The Euro has struggled to have an impact on the markets in recent weeks as the USD has dominated given its safe-haven status. Increased uncertainty around Donald Trump’s next policy move has also been part of this story, particularly with the overhanging threat of trade tariffs being introduced to EU exports to the US, which the US President now appears to be following through with. Under pressure from the US Dollar, the Euro has had some respite from improved export figures in Germany, Europe’s largest economy, at the end of last week.

Furthermore, we do see some encouragement this morning for the single currency as the Sentix Investor confidence report shows that investor morale in the EU is at its highest since July 2024. Expectations of continued improvement in Germany have added some positive momentum here as we begin the week. 

EU GDP was released today and was the main event this week. The estimation of annual growth for 2024, based on seasonally and calendar-adjusted quarterly data, came in at 0.9%, as expected.

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory. 

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