The Bank of England delivered a more hawkish announcement, but the prospect of a rate cut continued to weigh on the pound sterling in GBP/USD and other pairs.

The Pound Sterling was sluggish at the end of the European session on Thursday (1/February). GBP/USD attempted to stretch after announcing the BoE's Monetary Policy Committee (MPC) meeting results, but its movement was held at around 1.2665. Sterling also remained unchanged against the euro and the Japanese yen.

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Bank of England (BoE) officials dismissed speculation about a rate cut at this afternoon's policy meeting. A total of six out of nine MPC members supported interest rates remaining at 5.25%. Instead, two MPC members suggested raising rates; only one supported a rate cut.

During the BoE MPC meeting, it was finally decided to maintain the current interest rate level. In addition, they stated that a rate cut can only be made if there is more evidence of controlled inflation.

BoE Governor Andrew Bailey emphasized, "We've held rates because, even though there has been good news on inflation, we need to be sure that it falls back to our 2% target and stays there sustainably."

The BoE's stance was more hawkish than the market had previously expected. However, analysts cautioned that the BoE did not present any new arguments in its policy statement today. The BoE will also continue to cut interest rates this year, although the starting point is yet to be confirmed.

"On the whole, the BoE decision was slightly hawkish relative to expectations heading into the release. Thus, markets have pared near-term rate cuts bets and by extension lifted sterling higher. That said, the pivot towards looser policy going forward is in," says Justin McQueen a market analyst at Reuters.

Current market data suggests a roughly 50% chance of a BoE rate cut scenario from May 2024. The odds have dropped considerably compared to before the BoE meeting, but could easily jump again if the UK economic reports worsen.

The expectation of the first BoE rate cut in May 2024 is similar to the prediction of the beginning of the Federal Reserve's "rate cut" cycle. Meanwhile, the European Central Bank (ECB) will likely cut interest rates in April.