Bank of England Holds Rates Steady as Two Policymakers Back a 25-bps Hike

Summary:

The Bank of England kept interest rates unchanged, but policymakers maintained a hawkish bias, with inflation risks remaining the central focus of monetary policy.

Buy GBPJPY

EXP

Trading

212.998

ENTRY

217.830

TGT

210.300

213.062 -0.047 -0.02%

Point

Flat

210.300

CLOSING

212.998

ENTRY

217.830

TGT

Fundamentals

The Bank of England left its benchmark interest rate unchanged at 3.75% for the fourth consecutive meeting, in line with market expectations. The Monetary Policy Committee (MPC) voted 7-2 to keep rates on hold, while external member Megan Greene and Chief Economist Huw Pill favored an immediate 25-basis-point increase to 4.00%, highlighting persistent concerns over inflation within the Committee.

The BoE noted that although the preliminary ceasefire agreement between the United States and Iran has helped ease global energy prices, they remain elevated and highly volatile compared with pre-conflict levels. As the UK relies heavily on imported natural gas, a sustained reopening of the Strait of Hormuz and further declines in energy prices would help alleviate future inflationary pressures. However, policymakers stressed that the surge in energy costs over recent months has already begun feeding into the broader economy, with inflationary pressures continuing to build.

The Committee believes the key risk is whether higher energy costs will trigger broader second-round inflation effects, including stronger wage growth and persistent price increases. The BoE warned that the longer energy prices remain elevated, the greater the risk that inflation becomes embedded in wage- and price-setting behavior. Meanwhile, its latest quarterly survey showed that UK household inflation expectations have risen to their highest level since at least 2009, reinforcing the case made by the two hawkish members for an immediate rate hike.

Nevertheless, the majority of policymakers argued that there is still insufficient evidence that inflationary pressures have become entrenched, making an immediate rate increase premature. The BoE pointed out that the labor market continues to soften, domestic demand remains weak, and financial conditions have tightened significantly since the Middle East conflict intensified. As a result, current interest rates are already restrictive enough to contain inflation without further tightening.

Governor Andrew Bailey stated that recent inflation data continue to suggest that underlying disinflationary trends remain intact. However, he emphasized that the BoE stands ready to act if second-round inflation effects become more pronounced, ensuring inflation ultimately returns to its 2% target.

The Bank now expects inflation to rise above 3.25% in the fourth quarter of this year, up from 2.8% in May but below its previous forecast of 3.6%-3.7%. It also upgraded its economic outlook slightly, projecting potential quarterly GDP growth of around 0.2%, compared with the previous estimate of 0.1%.

Overall, the meeting delivered a distinctly hawkish message. Although the Bank kept rates unchanged, repeated references to persistent inflation risks and the two dissenting votes in favor of a rate hike suggest that future policy decisions will remain highly dependent on inflation and energy price developments. Until inflation is firmly on track to return to target, the BoE is likely to maintain a cautious but restrictive policy stance.

Bank of England Holds Rates Steady as Two Policymakers Back a 25-bps Hike_1

Technical Analysis

GBP/JPY declined sharply and broke below the 212.95 support level, suggesting that the rebound from 210.45 has once again entered a corrective phase. Intraday price action is expected to remain volatile, with further downside likely targeting the demand zone around 211.81. A decisive break below 211.21 would expose the 210.42 support area.

On the upside, if the pair stabilizes around the 212.95 region and buying interest returns, it could resume its broader uptrend and retest the previous high at 216.59.

Trading Recommendation

Trade Direction: Buy

Entry: 213.00

Target: 217.83

Stop Loss: 210.30

Valid Until: July 17, 2026, 23:55

Support: 213.00, 213.62, 211.82

Resistance: 214.67, 215.36, 216.09

Risk Warnings and Investment Disclaimers

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Eva Chen

Analysts

Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.

Rank

Articless

2601

Win Rate

60.53%

P/L Ratio

0.59

Focus on

WTI, XAUUSD, GBPUSD

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Bank of England Holds Rates Steady as Two Policymakers Back a 25-bps Hike

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