Sterling dropped below $1.24 after the Bank of England held rates at 3.75%, extending a pause since the U.S.-Iran war began. Traders now expect no tightening until February CPI confirms persistent inflation.
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The Bank of England kept its key rate at 3.75% on Thursday, extending a pause that has lasted since the start of the U.S.-Iran conflict. Policymakers judged a hike premature, pointing to unclear inflation pressures tied to war-related energy costs and supply-chain disruptions. Sterling fell on the decision, dropping below $1.24 in afternoon London trade.
The Monetary Policy Committee voted to hold, acknowledging that rising energy prices and disrupted supply routes are feeding into consumer prices. The Bank said it was not yet convinced the spike would prove persistent. That posture left the committee unwilling to tighten further until the inflation trajectory becomes clearer – a view that disappointed traders who had hoped for a more hawkish signal.
The pound’s decline extended losses from the previous session. Traders said the hold reinforced expectations that the Bank will delay any tightening until at least the next round of inflation data confirms a sustained problem. Gilt yields edged lower on the announcement, with the two-year dipping 5 basis points.
The decision widens the rate differential with the Federal Reserve, which has continued raising rates through the war. That gap could keep sterling under pressure, especially if the conflict keeps driving dollar demand. The GBP/USD profile shows the pair testing the 1.2400 support zone, a level that has held since the war began.
UK equities were mixed. Export-oriented names gained on the weaker pound, while domestic stocks lagged on growth concerns tied to higher import costs. The FTSE 100 edged up 0.2%, led by miners and oil producers.
Governor Bailey said in recent remarks that the MPC is in no rush, preferring to let actual inflation prints guide the next move rather than forecasts. The next key data point is the February CPI report, due mid-March. Until then, the hold-and-wait stance leaves the pound exposed to further dollar strength and any escalation in the conflict.
The broader forex market analysis page tracks how rate differentials are shifting across G10 currencies as central banks diverge on war-driven inflation.
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