British Pound: BoE stance leaves Pound exposed – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad reports that the Bank of England (BoE) kept Bank Rate at 3.75% but signaled a low bar for further tightening. Governor Bailey warned policy may have to tighten if Middle East conflict-driven second-round effects emerge.
Brown Brothers Harriman's Elias Haddad claims the Bank of England (BoE) maintains a low threshold for further interest rate hikes. BoE Governor Andrew Bailey warns that if the Middle East conflict persists, policy may need to tighten. The UK economy is already underperforming, with the Bank Rate at 3.75% close to the midpoint of the BoE's neutral range of 2% to 4%.
Quantitative tightening (QT) will slow, with a gradual reduction of £46bn a year in gilt holdings through 2034, down from £87.5bn average annual reductions in the past four years. Unless energy prices stabilize, gilt yields will remain under pressure. The market expects about 100 basis points of BoE rate hikes within the next year, but the UK economy's slack suggests GBP may be vulnerable to a dovish BoE shift in stance.
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