Britain’s borrowing costs fell & the sterling pound dipped on Thursday, 30 July ’26, as traders nudged down their bets on UK rate hikes. This decision was after the Bank of England (BoE) left rates unchanged. BoE also said that there were a few signs of the oil shock from the Iran war spreading through the economy.
The BoE’s Monetary Policy Committee (MPC) sustained rates at 3.75%. This was besides one more policymaker voting for a hike, which led to a 6-3 split. The decision opposed the 7-2 divide that economists polled by Reuters had expected.
Governor, Andrew Bailey said there was huge uncertainty around the U.S.-Iran conflict & its impact on energy prices besides inflation.
Markets appeared to take comfort from policymakers’ comments that domestic factors appearing to be putting downward pressure on inflation, for now at least.
Traders still fully price in a rate hike by the end of this year. They pared back those bets. They now price in 29 basis points (bps) of tightening this year. That’s down from 38 bps before Thursday’s decision, 30 July, according to LSEG data.
Britain’s 2-year government bond yield’s sensitive to BoE rate expectations. It extended its earlier fall to trade 12 bps lower at 4.338%. it was set for its largest 1-day fall in over 2 months.
A decline in short-dated U.S. yields overnight, after the Federal Reserve held rates on Wednesday, 29 July, helped in pulling UK yields lower. Yields tend to move inversely to prices.
Meantime, UK’s 10-year bond yield fell 4 bps to 4.992%.
The Sterling Pound erased previous gains against the U.S. Dollar & the Euro. It was last trading at around US $1.337 and 85.85 pence per euro, with little change.
Schroders senior economist George Brown said that for now, the bank isn’t seeing enough to abandon its wait-and-see approach.
Despite the sharp rise in energy prices, the majority appear unconvinced that such a trend may translate into more persistent domestic inflation.
The BoE’s central projection in the updated forecasts indicated that inflation would rise to 3.2% later this year, up from a 15-month low of 2.6% in June.
