Sterling Weakens as Markets Scale Back Bank of England Rate Hike Bets

LONDON: The British pound slipped to a one-week low against the U.S. dollar and the euro on Thursday as investors reduced expectations of a Bank of England (BoE) interest rate increase this year, ahead of the annual Jackson Hole monetary policy symposium in the United States.

Sterling fell 0.1% to around $1.3578 and also weakened against the euro to 85.75 pence. Market pricing indicated that investors no longer expected a full 25-basis-point increase in the BoE’s benchmark interest rate during 2026, broadly aligning with economists’ expectations that the central bank will keep rates unchanged.

The shift in expectations followed a period in which stronger UK economic data and concerns about persistent inflation had prompted markets to anticipate a possible rate increase. However, recent developments have led investors to reassess the likelihood and timing of further monetary tightening.

Two-year British government bond yields also edged lower to about 4.36%, while declining oil prices provided additional relief to inflation expectations amid diplomatic efforts to ease tensions surrounding the conflict in the Middle East.

Chris Beauchamp, chief market analyst at IG Markets, expressed skepticism about the prospect of a BoE rate increase, pointing to economic and political uncertainties facing the UK.

Attention has meanwhile turned to the Jackson Hole symposium, where U.S. Federal Reserve Chair Kevin Warsh is expected to provide investors with further indications about the future direction of U.S. monetary policy. His comments could influence global currency and bond markets, including sterling.

Investors are also closely monitoring developments in UK fiscal policy as Parliament resumes. Questions over government spending plans, high budget deficits and potential tax measures could further influence perceptions of Britain’s economic outlook and the pound’s performance.

The latest market moves underscore the uncertainty surrounding the timing of the next BoE rate increase, with investors increasingly looking toward incoming economic data and central-bank guidance before adjusting their expectations.