The British pound weakened toward $1.32, its lowest level since April 3, after the Bank of England voted 7–2 to leave interest rates unchanged at 3.75%, as widely expected. Policymakers struck a cautious tone, highlighting uncertainty over the economic fallout from the energy shock linked to the conflict in the Middle East.
The BoE reiterated that it stands ready to act against inflation, with Governor Andrew Bailey stressing that price pressures stemming from the Iran conflict remain in place despite the ceasefire and the prospect of a deal. The Monetary Policy Committee anticipates inflation will pick up again later this year as higher costs continue to feed through the economy, although it lowered its forecast for peak inflation in Q4 2026 to 3.25%, from 3.6% previously.
The decision came on the heels of the US Federal Reserve’s choice to keep rates on hold, even as nine of its 19 policymakers now project at least one additional hike this year. At the same time, investors are watching the Makerfield by-election, which could influence the Labour Party’s leadership dynamics and future economic policy direction.
