Thursday saw the bank of England drop interest rates for the first time since March 2020. Yesterdays 0.25% cut saw the BOE base rate fall from 5.25% to 5%. Rates in 2020 were 0.1% and remained there until rate hikes started in December 2021, with gradual hikes which finally saw the base rate halt in August 2023 at 5.25%, the highest in 16 years.
Policymakers ultimately voted 5-4 in favor of the reduction, with Governor Andrew Bailey saying that the committee would move ahead cautiously, but inflation pressures have eased enough for a rate cut.
The decision will come as joy for homeowners who have been struggling with rising mortgage payments as major banks have confirmed rates could go down as low as three per cent.
The pound which had been on the up over the past few weeks briefly moving to a one year high over 1.30 against the dollar on the back of Labor taking control of the UK with their ‘landslide’ victory and coupled with the IMF predicting that the UK economy would grow faster than expected this year.
However talk of the interest rate drop started to re-trace the pounds gains, and after the dust settled following the BOE rate decision and MPC minutes we saw the pound fall against the dollar to around 1.2730, and GBPEUR dip below 1.18, a drop of over 1% from last weeks highs.
On Thursday, concerns among US investors about a cooling job market, slowing manufacturing, and the Federal Reserve potentially delaying interest rate cuts too long to prevent a recession, sparked a significant global stock sell-off. The Dow Jones dropped almost 500 points (1.2%), and the S&P 500 fell by 1.3%. Additionally, a string of poor performance reports from tech companies prompted sell-offs in major tech stocks.
Steady economic growth and a surprising rise in German inflation are leaving the ECB with a tricky decision when they meet at their Interest rate policy meeting in September. The eurozone economy grew slightly more than expected in the second quarter, as continued growth in France, Italy and Spain offset yet another disappointing quarter in Germany. Overall growth was steady at 0.3 percent in the three months through June, and at 0.6 percent compared to the second quarter of 2023.
GBPUSD currently resides at 1.2740
GBPEUR resides at 1.1775
EURUSD resides at 1.0820
