18.09.202519:31 Forex Analysis & Reviews: Bank of England keeps rate at 4%

The pound reacted with a slight decline to the Bank of England's decision to keep the interest rate at 4%. The regulator also left open the prospect of a further rate cut later this year due to growing concerns about a resurgence of inflation.

The Monetary Policy Committee voted 7–2 on Thursday to keep rates unchanged. Swati Dhingra and Alan Taylor, long-time supporters of a dovish stance, backed another quarter-point cut. Economists had expected such a decision and a split vote.

In its accompanying statement, the Bank of England noted that inflation remains above the 2% target and that there is a risk of further acceleration. The regulator also stressed that it is closely monitoring developments in the labor market, where rising wages could fuel inflation.

Market reaction to the Bank of England's decision was muted. The pound posted a slight decline as investors digested the news of unchanged rates and the uncertainty surrounding future policy.

The Committee also warned that any future cuts would be gradual and cautious, depending on the extent to which underlying disinflationary pressure continues to ease. It added that medium-term inflation risks remain significant in its assessment.

"While we expect inflation to return to our 2% target, we are not yet out of a difficult situation," Governor Andrew Bailey said. The Bank noted that greater progress has been made in reducing wage pressures than in lowering prices, adding that the recent rise in inflation could intensify pressure on both.

The Bank of England's statements confirm the more cautious tone maintained since the last meeting in August, prompting traders to scale back bets on future cuts. This followed official data earlier this week showing that inflation is nearly double the Bank of England's 2% target and signs of stabilization in the labor market.

The situation in the UK contrasts sharply with the Federal Reserve, which on Wednesday cut rates and is expected to follow up with several more reductions. Against this backdrop, medium-term growth of the pound against the U.S. dollar remains likely.

As for the current technical picture of GBP/USD, buyers need to reclaim the nearest resistance at 1.3670. Only then will it be possible to target 1.3720, a level that will be difficult to break above. The ultimate target stands at 1.3773. In case of a decline, bears will attempt to regain control at 1.3625. If successful, a breakout of this range would deliver a serious blow to bulls and push GBP/USD toward the 1.3590 low, with the prospect of extending to 1.3555.