Sterling has climbed to its highest against the USD in two and half years, this comes as the Bank of England held interest rates.
The pound rose to $1.331 over the Monetary Policy Committee (MPC) to hold interest rates at 5% on Thursday.
The banks governor Andrew Bailey said, “Inflationary pressures have continued to ease since we cut interest rates in August. The economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time.”
“But it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”
Luke Bartholomew, deputy chief economist at Abrdn, said: “Clearly, the Bank’s relative caution stands in some contrast to the Fed’s strong start to its easing cycle, with a 50bps cut yesterday. This difference in policy partly reflects different mandates of the two central banks, but also the different growth and inflation outlook.
“Underlying inflation pressures in the UK remains elevated, while the labour market is sending quite mixed messages about the health of the economy. This divergence should help support the pound for now.
“But attention in UK markets may increasingly shift away from monetary policy and towards fiscal policy as we approach the budget at the end of October. Certainly, the Bank will need to incorporate any fiscal changes in its next forecasts, which could provide the foundation for more rapid cuts in due course.”
