The Bank of England held Bank Rate at 3.75% on Thursday, leaving its key interest rate unchanged for a third meeting in a row. The decision itself was widely expected, but the manner of it was not. The nine-member Monetary Policy Committee split 7 to 2, with chief economist Huw Pill and external member Megan Greene both voting to raise rates by a quarter point. Not a single policymaker voted for a cut.
The hawkish tilt — a stance that leans towards keeping rates high to bear down on inflation — reflects a committee still wary of price pressures. UK consumer price inflation held at 2.8% in the year to May, published on Wednesday and a touch below the 3.0% markets had feared, but still well above the Bank's 2% target. Energy costs tied to the conflict in the Middle East have eased from their peak yet remain elevated and unstable. Set against that, the Bank acknowledged a softening labour market and an economy that contracted in April. It was, in effect, a hold with a hawkish accent: with two members pushing for higher rates and none for lower, the centre of gravity on the committee has shifted towards keeping policy tight for longer.
The decision followed the Federal Reserve a day earlier, where new chair Kevin Warsh kept US rates in a 3.5% to 3.75% range and dropped long-standing language hinting at future cuts. The Fed's updated projections now point to possible rate rises rather than reductions, with any easing pushed out to 2027. For the first time in this cycle, the two central banks are leaning the same way — towards tighter policy for longer — as the energy-driven inflation shock keeps both on guard.
What it means for GBP
For sterling, two hawkish holds in two days proved a mixed blessing. Although the Bank's vote split leaned towards higher rates, the dollar drew the greater support from the Fed's firmer projections, and GBP/USD slipped to around 1.32, down from near 1.34 ahead of the meetings and well below the 1.35 to 1.36 range seen earlier in the spring. GBP/EUR held steadier near 1.1565. With both the Bank of England and the Federal Reserve now signalling that rates will stay higher for longer, the pound's next move is likely to hinge on which economy shows the first cracks. For UK businesses and private clients with a known currency requirement in the months ahead, a forward contract allows today's rate to be fixed for a future settlement date, taking the guesswork out of a finely balanced outlook.
