The Bank of England lifted interest rates in a hawkish decision, with a unanimous vote for tighter policy and one member, Catherine Mann, favouring a 50-basis-point move. Governor Andrew Bailey said further increases were likely, though he offered no timetable and framed the outlook partly around geopolitical developments, including the possibility of the war ending suddenly. Markets had gone into the meeting with elevated expectations, with almost three additional rises priced in by the middle of next year, which limited the impact of the vote on pricing.
Sterling’s Reaction and Market Expectations
Sterling’s gains proved short-lived and faded as the session progressed, despite the apparent show of unity at the BoE. Commerzbank’s base case remains that the next increase arrives in February rather than December, consistent with what it views as the central bank’s cautious pattern so far. It also argues that if the situation in the Middle East stabilises and energy exports normalise by then, the rationale for further tightening would weaken, leaving the pound struggling to drive higher in the interim.
