The pound was marginally lower against the euro in early trading on Thursday, ahead of a Bank of England rate decision, at which policymakers are widely expected to raise interest rates for the first time in over a decade.
One pound was trading around €1.138 early in London, and around $1.327 against the dollar. The FTSE 100 index of the UK’s biggest publicly listed shares was little changed shortly after the stock market open, just below 7,490.
A rate hike on Thursday would be the first such move since 2007, and although expectations are high that Governor Mark Carney and his team will move rates up from 0.25 per cent to 0.5 per cent, the case is far from one-sided.
Experts have said that growth in the UK economy appears weaker now than before any other rate rise of the past 20 years. The UK economy grew by just 0.4 per cent in the most recent quarter and wages are stagnating too.
Higher interest rates generally support a currency and Hussein Sayed, chief market strategist at FXTM, said that if the Bank decided to stay put, the pound will likely fall, “unless the BoE sends a clear message for a rate hike in December.”
“Trading the BoE will prove to be a tricky one, given the many possible scenarios; however, I think the central bank will hike rates today and reassure markets that further monetary policy tightening will remain limited for the foreseeable future,” he said.
On the flip side, Phil McHugh, senior market analyst at Currencies Direct, said that if we do see a rise in rates as expected, “we are likely to see a small but limited follow through in [sterling] strength”.
“The direction of the pound longer-term will depend on whether this is a one-off hike as a corrective measure following the emergency rate cut post the Brexit vote or the start of a hiking cycle. It is more likely to be the former,” he said.
The decision is due to be announced at noon in London, ahead of a press conference hosted by Mark Carney. The Bank will also publish its growth forecasts and inflation report.
