British Pound Sterling slides after the Bank of England stays put

The British Pound Sterling has weakened after the Bank of England kept interest rates steady. The currency slipped to a session low of 1.3336, its weakest point since mid-July, and has been trading below its 200-day average since Wednesday. The Bank of England maintained its Bank Rate at 3.75%, with three of its nine members voting for a rise to 4% and none supporting a rate cut.

Despite this leaning towards an increase, the Pound still declined. UK consumer price inflation rose to 3.1% in August, a five-month high and the first time above 3% since March, with motor fuel contributing significantly. The committee predicted inflation would continue to rise in the coming quarters, with the Bank's own forecast indicating rates could exceed 4% by early 2027.

Three committee members advocated for an immediate response to this trend, while Bank Governor Bailey argued against it. The Bank also decided to slow its gilt sales to £20 billion per year. The market anticipates a quarter-point rate increase at the November 5 meeting, with the Bank Rate reaching 4.18% by year-end, and a potential four increases by December 17.

The same forecast projects Sterling to be worth more than the Dollar a year from now, leading to a decrease in the exchange rate. The Federal Reserve is expected to raise rates as well, but the UK's softer labor market adds to the Pound's downward pressure. The Bank of England will meet again on November 5, leaving the Pound without any official guidance in the interim.

The upcoming data releases, including UK retail sales, flash purchasing surveys, and UK flash purchasing surveys, will further influence the Pound's value.