Bank of England Keeps Interest Rates Unchanged

Key Highlights

• The Bank of England (BoE) has decided to maintain the interest rate at 3.75%.
• The decision was made by a vote of 7-2, with two members advocating for a 25 basis points increase.
• Headline Consumer Price Index (CPI) has decreased to 2.8%, but the BoE warns of potential inflation increases later in the year.

Inflation Concerns

The BoE has expressed concerns regarding inflation, which may rise due to:

• Volatile energy markets.
• Potential second-round effects from wage-setting.

Despite recent peace plans in the Middle East that have temporarily lowered oil and gas prices, energy markets remain unstable and above pre-conflict levels. The Committee noted that previous measures to mitigate supply disruptions may only provide temporary relief.

Market Reactions

Following the BoE's decision, traders have adjusted their expectations for interest rate hikes in 2026, now anticipating a total of 32 basis points, with a possible hike starting in September and fully priced in by November.

The hawkish split in the vote has led to a recovery in the 2-year bond yield spread between the UK and the US, although the overall differential remains weaker compared to earlier months.

Technical Analysis of GBP/USD

The GBP/USD currency pair is currently experiencing significant bearish pressure, having broken below key exponential moving averages (EMA 10, 30, and 100). This indicates a loss of bullish momentum and a shift in market sentiment.

The Relative Strength Index (RSI) is hovering just above the 30 level, suggesting that the asset is nearing oversold territory. Investors are advised to monitor this level closely, as a sustained move below 30 could indicate continued selling pressure.