UK Interest Rates and Sterling Exchange Rates

Today at midday we have the latest interest rate decision from the Bank of England (BoE) where it is expected that they will announce that interest rates will remain on hold at the record low level of 0.5%. At the same time the BoE will announce whether they have decided to amend the current level of Quantitative Easing (QE) although this is again expected to remain unchanged. The reason I am confident there will be no change is that the UK economy has continued to show some positive signs and making an amendment to QE or interest rates could damage the current recovery and therefore contradict the comments yesterday from the International Monetary Fund who stated that the UK will see much better growth than previously forecasted.

However, as the UK continues to show better economic growth the argument does grow that QE could be reduced in a similar fashion to that of the States who are reducing their version of QE by $10bn per month and there is also more of an argument that interest rates could be raised sooner rather than later. The BoE commented that interest rates are likely to rise in Spring next year meaning we could still be a year away from a rate hike however if the economy continues to expand over the summer the Central Bank may decide to bring that interest rate rise forward. While it is likely there will be no change today, any accompanying statement from the Governor of the BoE, Mark Carney, regarding future plans to reduce QE or raise interest rates could generate some Sterling strength pushing rates up towards the 1.6750 level against the Dollar and 1.2150 against the Euro.

Historically speaking interest rate announcements have led to big movements on Sterling exchange rates and while I would be surprised if there was a shock announcement today, this afternoon’s announcement continues to be one of the most closely watched and eagerly anticipated. So for those clients looking to transfer funds internationally it will be key to stay informed of the latest news from the BoE.