Markets eager for an aggressive monetary approach from the BoE


Yesterday saw a sharp decline for Sterling against the euro and US dollar following last week’s monetary policy decision and mini budget. The market was hoping for a minimum of 75 basis points interest rates hike from the Bank of England. However, the central bank disappointed with hiking rates by only 50 basis points, falling behind the European Central Bank and the US Federal Reserve’s aggressive approach to raising rates.

Sterling fell to an all-time low against the dollar trading at 1.0327, GBP/EUR also fell to a worrying twenty-year low reaching 1.0836. Sterling’s sell off has forced the BoE to step in. The bank is due to release a statement in the coming days and markets are hoping for an aggressive decision to help the British pound to rebound.

Global interest rates rising have also weighed negatively onto the stock market with financial pressure becoming heavier for businesses. The new Chancellor Kwasi Kwarteng’s announcement had made government bonds and Sterling plummet on Friday and continue to fall on Monday despite the objective of this ‘mini-budget’ to be to support economic growth by funding tax cuts through huge increases in government borrowing.

Some argued that the £45bn tax cut was going to add a negative contribution to Sterling as allowing consumers to spend more would not halt rising inflation.

The latest statement from the BoE indicates that MPC members will not hesitate to raise interest rates further, however no definitive figure was mentioned. No decision will be made until the BoE next meeting which is set for November, allowing more room for Sterling volatility in the month ahead with little to no supporting data for the pound.