LONDON: The British pound dropped on Thursday after the Bank of England raised interest rates but sounded less certain about the pace of further tightening to combat soaring inflation.
Sterling had gained before the BoE announced its Monetary Policy Committee had voted 8-1 to raise rates 25 basis points to 0.75%. The one dissenter voted to keep rates on hold.
Some traders had been expecting one or two policymakers to vote for a bigger 50 basis points hike, and the language the MPC used - saying “some further modest tightening might be appropriate in the coming months” - was less hawkish than anticipated.
“In contrast to both the US Federal Reserve and the European Central Bank, the Bank of England delivered a relatively dovish message to investors today,” said Ed Hutchings, head of rates at Aviva Investors, adding that “there was more of a focus on slower growth and its impact on households going forward”.
The pound dropped more than a cent to $1.3088, down 0.4% on the session after earlier reaching as high as $1.3211. It later recovered to $1.3160 as the dollar sold off broadly.
Against the euro, sterling was last at 84.45 pence , 0.6% weaker on the day after trading higher versus the single currency before the BoE announcement.
The Ukraine war and spike in commodity prices have made the BoE’s job harder as it confronts an inflation rate already running at more than double its 2% target and economic growth that is likely to slow given the squeeze on consumers’ living standards and the impact of the conflict.
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