Sterling steadies near multi-month lows ahead of BoE decision

LONDON: Sterling steadied around its lowest in months on Thursday ahead of a key Bank of England rate decision, with markets pricing a one-in-three chance of a cut, while most analysts believe the central bank will likely hold fire.

Sterling edged 0.1% higher to $1.3066 ahead of a 1200 GMT BoE rate decision, after hitting a seven-month low of $1.3011 on Wednesday.

The pound weakened a touch against the euro, which rose 0.1% to 88.14 pence after touching its highest since May 2023 on Wednesday. Markets show traders are pricing a roughly 32% chance of a cut, up from virtually nothing just weeks ago.

Helping reinforce that view, finance minister Rachel Reeves this week hinted at tax hikes that could weigh on the economy.

Reeves paved the way for broad tax rises to avoid a return to “austerity” on Tuesday, framing her second annual budget - due on November 26 - as one of “hard choices” to protect public spending while reducing Britain’s debt.

What had until recently seemed likely to be a clear majority vote to keep the BoE’s Bank Rate at 4.0% now looks much closer after inflation unexpectedly held steady in September and recent jobs data was welcomed by Governor Andrew Bailey as a sign that inflation pressures were easing. US investment bank Goldman Sachs last week changed its view and said it now expected a rate cut.

“Today, we see the BoE on hold despite mounting speculation of a pre-Budget cut,” Francesco Pesole, FX strategist at ING.

“We think there are some upside risks for sterling today as markets may not receive clear signals towards a December move.”

Most economists polled by Reuters last month predicted a 6-3 decision by the MPC to leave Bank Rate unchanged.