Sterling Holds Near Two-Month Low as BoE Keeps Rates Steady

The British pound held just below $1.34, near its weakest level since late July, after the Bank of England kept rates at 3.75% in a 6-3 vote, and warned that rates could need to rise if inflationary pressures intensify due to the conflict in the Middle East. In prepared remarks, Governor Andrew Bailey said the global energy shock has so far had a limited impact on UK prices and wages, but warned that prolonged volatility could put greater pressure on inflation and increase the need for a rate hike. The MPC also unanimously voted to reduce its stock of UK government bond purchases to zero through a multi-year programme, with an average annual pace of £46 billion through 2034, slower than previously and below the £50 billion expected by markets. The BoE now expects inflation to reach twice its 2% target early next year, while raising its third-quarter GDP forecast to 0.4%. Meanwhile, the Fed raised rates by 25 basis points yesterday and signaled another hike later this year.