The Bank of England on Thursday ended a streak of interest rate hikes after raising rates 14 times in a row as new data showed inflation was now running below expectations.
The bank has consistently raised rates since December 2021 in an effort to control inflation, increasing the key policy rate from 0.1% to 5.25% in August, reaching its highest level in 15 years. Rates are currently unchanged in September.
Investors on Wednesday increased bets that the BoE will delay its interest rate hike spiral after inflation in the UK fell significantly below expectations for August.
Annual growth in the core consumer price index fell to 6.7% from 6.8% in July, defying consensus forecasts that expected it to rise to 7%, due to lower food and accommodation prices. Core CPI, which excludes volatile food, energy, alcohol and tobacco prices, fell to 6.2% from 6.9% in July.
Markets were initially split 50-50 on whether the BoE would delay or opt for another 25 basis point hike, according to LSEG data, before shifting to 60-40 in favor of a hike in the hour before the decision.
The Bank of England is caught in a dilemma between returning inflation to a reasonable level and breaking the so far strong economy into recession. UK GDP shrank by 0.5% in July, while several British companies issued warnings of falling profits on Tuesday.
The US Central Bank on Thursday kept interest rates at current levels but indicated that it still expects one more hike before the end of the year, along with fewer cuts in 2024 than previously expected.
The pound currency weakened against the US dollar with a decrease of 0.62% to a trading level of 1.2260.
