GBP/JPY steadies near 201.00 after BoE keeps rates unchanged at 4.0%
- GBP/JPY holds firm above 201.00 after the Bank of England keeps rates unchanged.
- The BoE leaves Bank Rate at 4.0% in a close 5-4 split, with four members backing a 25 bps cut.
- Governor Bailey says rates are likely to stay on a gradual downward path but remain restrictive until inflation eases further.
The British Pound (GBP) trades slightly firmer against the Japanese Yen (JPY) on Wednesday after the Bank of England (BoE) decided to keep interest rates unchanged at 4.0%, in line with market expectations. At the time of writing, GBP/JPY is trading around 201.18, rebounding from a knee-jerk low of 200.65 seen immediately after the monetary policy announcement.
The BoE’s 5-4 vote revealed a close split within the Monetary Policy Committee (MPC), with four members favoring a 25 basis-point (bps) rate cut. Policymakers noted that inflationary pressures continue to ease, supported by slower wage growth and signs of weaker demand. Headline CPI stood at 3.8% in September, and the central bank expects inflation to fall to around 3% early next year, before returning toward the 2% target in 2027
Despite a dovish tilt, the BoE emphasized that any future rate cuts would be “gradual and data-dependent.” The central bank’s latest forecasts point to subdued Gross Domestic Product (GDP) growth through the end of the year, with household spending restrained by high borrowing costs and an elevated saving ratio. According to the BoE’s November Monetary Policy Report, market pricing now implies the Bank Rate will decline to around 3.5% in the second half of 2026.
Speaking at the post-meeting press conference, BoE Governor Andrew Bailey said the central bank is likely to remain on a “gradual downward path” for interest rates, reaffirming that policy will stay restrictive for some time to ensure inflation returns sustainably to target. Bailey noted that economic activity remains below potential and the labor market is clearly slowing, with firms hiring less and employment subdued.
He cautioned, however, that inflation could remain sticky, emphasizing that policymakers need to see the downward path in price pressure become more established before considering further rate cuts. Bailey added that the Committee reassesses how restrictive policy is at each meeting, with no fixed view on the neutral rate.
The policy contrast between the Bank of England and the Bank of Japan remains a key driver for the pair. While the BoE signaled that interest rates are likely to move lower gradually through 2026 as inflation slows, the BoJ kept its policy rate unchanged at 0.50% last week but hinted that further tightening could be considered if inflation and wage growth strengthen. This policy gap continues to support the Pound’s relative resilience against the Yen in the near term.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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