GBP/USD: Pound gains ground as Bank of England maintains 15-year high interest rates

The Bank of England’s decision to keep interest rates at a 15-year high of 5.25% on Thursday led to a modest uptick in the pound and UK government bond yields. The GBP/USD pair edged up by 0.50% to $1.2211 following the announcement, compared to the $1.2193 level it held just prior to the Bank of England’s decision. The Monetary Policy Committee (MPC) had voted 6-3 in favour of keeping the Bank Rate unchanged, aligning with the consensus among economists.

The Bank of England emphasised its intention to uphold these elevated interest rates, quashing any speculation about potential cuts in the near future. The central bank’s statement read, “The MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for an extended period of time.” This commitment to a prolonged period of monetary restraint is seen as a measure to combat persistent inflationary pressure.

Bank of England Governor Andrew Bailey, who has consistently advocated for maintaining higher rates to stabilise the economy, reiterated the central bank’s stance. He stated, “The bank will keep rates high enough for long enough to return inflation to target.” Bailey further added that whether the UK’s GDP growth turns out to be slightly negative or slightly positive, it won’t sway the bank’s commitment to its monetary policy.