Bank of England held rates as expected
Daily Currency Update
The Bank of England kept interest rates on hold at 4.0% yesterday, just as markets expected. However, the decision was closer than usual (5 votes to 4), and comments from Governor Andrew Bailey suggest that a rate cut could be on the horizon, possibly as soon as December, once the Autumn Budget has been released.
While inflation has come down from its peak of 3.8%, it’s still expected to stay above the Bank’s 2% target until mid 2027. Bailey said he wants to see “a bit more evidence” that price pressures are easing before backing a cut. Markets reacted quickly as investors now see almost a 2-in-3 chance of a rate cut at the next meeting on 18 December. The UK economy is still growing, but only modestly, with forecasts pointing to 1.2% growth next year and a slight rise in unemployment.
Key Movers
The federal government shutdown has now entered its 38th day, the longest in US history, with no agreement yet in sight. About 750,000 federal workers remain furloughed, while many others continue to work without pay. The impact is spreading across the economy, key programs such as food assistance and Head Start are being disrupted, adding pressure to households and consumer confidence.
Operational challenges are also mounting, with major airports warning of a possible 10% reduction in flights due to air traffic controller shortages. Although Republicans have proposed measures to reverse layoffs and ease the impact on federal employees, talks with Democrats remain stalled.
Financial markets are watching the situation closely. The longer the shutdown continues, the higher the risk to short term economic growth, consumer spending, and overall market sentiment.
Expected Ranges
- GBP/USD: 1.3116 - 1.3142 ▼
- GBP/EUR: 1.1348 - 1.1382 ▼
- GBP/AUD: 2.0219 - 2.0287 ▲
- EUR/USD: 1.1493 - 1.1552 ▲