YaMakets • 2024-12-23
The British pound slipped to a one-month low of $1.2475 after the Bank of England (BoE) left interest rates unchanged, citing persistent inflationary pressures as a key factor in delaying any future rate cuts. Despite signaling slower monetary easing in 2025, the central bank also downgraded its growth projections, underscoring a fragile economic backdrop.
Inflation in the UK remains stubbornly high, exceeding the BoE’s 2% target, driven by wage growth and entrenched price pressures. The current inflation rate in the UK reflects a broader challenge in balancing monetary policy amid these elevated price levels. BoE Governor Andrew Bailey highlighted that inflation risks still dominate decision-making, delaying any rapid pivot to rate cuts.
At the same time, the central bank revised down its GDP growth forecasts, reflecting the impact of elevated borrowing costs and a fragile global economic environment. This has intensified concerns over a potential period of stagflation—characterized by slow growth and persistent inflation.
The pound’s drop to $1.2475 signals market disappointment with the BoE’s cautious tone. Traders had hoped for stronger indications of monetary easing in 2024 to combat high living costs and housing market struggles. However, the latest policy signals have left investors worried about prolonged economic challenges.
Adding to the pound’s woes, the US dollar has surged on the back of strong US economic data and the Federal Reserve’s hawkish stance. This divergence in monetary policy expectations has further weighed on GBPUSD, with the pair likely to test 1.23 in the near term, according to the latest World Economic Outlook growth projections.
The pound’s near-term performance will hinge on upcoming inflation and labour market data, as markets assess whether the BoE can maintain its cautious stance while balancing growth and inflation risks. With challenges both domestically and globally, the road ahead for GBP remains uncertain.
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