The pound lost between 0.5% and 1.5% against most major currencies yesterday after the Bank of England (BoE) voted, narrowly, to cut interest rates from 5.25% to 5%.
However, with the cut carried by just five votes to four, and with the BoE’s own chief economist voting against, it has been described as a ‘hawkish cut’ – one that will not start an avalanche of cutting. It could result in one or two more cuts – to 4.65% – by the end of the year, suggest the money markets.
The BoE also upgraded its growth forecast to 1.25% this year, from 0.5%. This remains well below chancellor Rachel Reeves’ target.
The interest rate cut will boost the UK housing market, according to Savills’ director of research Emily Williams: “We expect this to feed through into more market activity in the autumn”.
Maybe that wasn’t required anyway. The Nationwide had reported earlier in the day that UK house prices rose by 0.3% in July, far ahead of expectations and to an annual increase of 2.1%.
There was also positivity in UK manufacturing, with the final result for S&P Global Manufacturing PMI coming in at 52.1 for August, a big rise from 50.9 the previous month. This was against a backdrop of US, German French and Spanish manufacturing PMI all worsening.
So, it was a mixed set of economic results that might otherwise have boosted sterling and may, along with the BoE’s uncertainty over further rate cuts, have held off a worse drop.
As it is, GBP/EUR and GBP/USD have returned to the position of a month ago. Against the euro, sterling is still trading at 1.4% stronger than a year ago.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 7898 0541 to get started.
It’s been a busy period for US central bankers too. The US Federal Reserve opted to hold rates on Wednesday, but with a clear signal that they would fall soon.
Elsewhere in the markets the tech sell-off continues, the Nasdaq Composite falling 2.3% amidst fears of an economic slowdown in the US. This was reflected in 10-year Treasury yields falling below 4%.
