The GBPUSD currency pair was trading lower today after the Bank of England hiked interest rates by 0.50%, bringing its official bank rate to 3.50%. The pair’s decline was attributed to the split vote as some policymakers wanted to keep rates stable.Â
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Investors interpreted the BoE’s Monetary Policy Committee’s (MPC’s) split vote as being dovish for the pound as the US Federal Reserve maintains a hawkish stance towards interest rates following yesterday’s 0.50% rate hike.
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Unlike the BoE, the Federal Open Market Committee (FOMC) indicated its willingness to keep rates high throughout 2023, hinting at possible reductions in 2024. The Fed Chair Jerome Powell said it was crucial to keep up the fight against inflation to prevent record-high inflation from becoming entrenched.
On the other hand, BoE MPC members Silvana Tenreyro and Dr Swati Dhigra urged their colleagues to keep rates stable at 3.0% as they voted against today’s 50 basis point rate hike. The two policymakers believe the current rate is enough to lower inflation.
However, many disagreed with the dovish comments from the two policymakers, given that UK inflation is currently at over 10% and is still a long way from the BoE target of 2%. The Fed is ahead of the BoE by 100 basis points, and the BoE has to catch up with the Fed.
Most analysts believe the BoE has to hike rates further to bring down the record-high inflation levels despite the looming risk of a massive recession in the UK. Lowering inflation is a must for the BoE, given the cost of living crisis being experienced in the country.
The Bank of England further said that it expects the country’s GDP to contract by 0.1% in Q4 2022, following a 0.3% decline in Q3, which would put the country’s economy firmly in a recession.
The central bank noted that despite easing global supply chain bottlenecks, global inflationary pressures remained high and would continue affecting Britain’s economy.
*This is not investment advice.
GBPUSD price chart.
The GBPUSD currency pair was trading down 89.4 pips (0.72% at writing, after falling on the dovish BoE rate hike.
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