• BoE keeps rates stable at 5.0%; reduces gilt holdings as expected

• Policymakers remain worried about inflation risks

• GBPUSD jumps into the 1.3300 region 

The Bank of England (BoE) kept interest rates on hold at 5.0% as expected on Thursday by a majority of 8-1 versus 7-2 analysts predicted.

Having kicked off its easing cycle with a normal 25bps rate cut back in August, the central bank judged that a gradual approach on the pace of rate reductions is more appropriate until inflation risks return sustainably to its 2.0% target. Yet, it signaled that any changes will be made on a meeting-to-meeting basis.

Futures markets eased their rate cut expectations to around 100bps by May 2025 from 114bps before the announcement, with the next 25bps reduction projected for November’s meeting. However, this should not be taken as granted as more repricing could come when the next inflation and employment reports roll in.

In other policy actions, the central bank kept the pace of quantitative tightening steady in line with forecasts, announcing a reduction of 100 billion pounds in government bonds for the next 12 months to a total of 558 billion pounds.

GBPUSD liked the persisting hawkish signals, surging above its post-FOMC peak of 1.3296 to a new 2½-year high of 1.3314. The next challenge could be the 1.3350-1.3400 region.