The Bank of England Maintained the Rate, but the Pound Remains Under Strong Pressure

[Ben Graham]

The Bank of England has expectedly kept the interest rate at 4.00%, but the 4 -5 vote split shows that this decision was not easy. The head of the BoE, Bailey, cast his decisive vote for maintaining the rate, expressing the view: "Instead of lowering the interest rate now, I would prefer to wait and see if the resilience of disinflation is confirmed through upcoming economic events this year."

Thus, the BoE was literally one step away from a rate cut. The press conference clarified somewhat why the rate was maintained – inflation was persistently rising in discussions, and Bailey indicated that two consecutive cuts are too rapid a pace. According to new BoE forecasts, unemployment will rise slightly to 5.0% in 2025/2026, while inflation will decline slightly, making it a more favorable moment for a rate cut.

Consequently, the likelihood of a rate cut in December has increased even further, as it must be considered that cuts to government spending will require easing, and there remains only one factor that could negate this forecast – a sudden rise in inflation. The pound cannot be supported by such a perspective, especially given that the rate being maintained last Thursday only led to a slight corrective rise. The correction was also somewhat supported by the housing price index, which rose significantly above forecasts in October, increasing the likelihood of inflationary growth.

It should also be noted that Prime Minister Rachel Reeves expects a lower rate from the BoE, as she has the task of reviving the economy, while Bailey, accordingly, awaits budget approval before responding with a rate cut in December. Everyone is satisfied except consumers, who, in addition to the high rate, also anticipate tax increases.

Regarding macroeconomic indicators, this current week is rich in events, and volatility in the pound will almost certainly increase. On Tuesday, a labor market report will be published, and the dynamics of average wages will be especially important. On Thursday, third-quarter GDP data, September industrial production, and several secondary indicators will be released.

The calculated price is confidently moving downward, with no signs of reversal yet; the trend is bearish.

The GBP/USD pair hit a 6-month low of 1.3009, breaking through a broad support zone we previously identified as a likely target, before correcting higher. The correction may extend to the resistance zone at 1.3190/3210; however, any rise is viewed merely as an opportunity to sell. After the correction concludes, we expect a resumption of the decline, targeting a firm break below 1.2940.

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