British Pound little changed against Euro as BoE lifts rates to 4.00%

• EUR/GBP remains near multi-month lows after the BoE’s widely expected rate hike.
• The BoE raises interest rates to 4.00%, delivering its first hike since 2023.
• Governor Bailey leaves the door open to further tightening as inflation is projected to reach around 5% by mid-2027.

The British Pound (GBP) struggles for direction against the Euro (EUR) on Thursday as the Bank of England’s (BoE) interest rate hike draws a muted market reaction, with the move already priced in. At the time of writing, EUR/GBP trades around 0.8331, down a modest 0.05% on the day, and remains pinned near levels last seen in April 2025.

The BoE raised its benchmark interest rate by 25 basis points (bps) to 4.00% on Thursday, with the Monetary Policy Committee (MPC) voting 8-1. External MPC member Catherine Mann favoured a larger 50 bps increase to 4.25%.

The move marks the BoE’s first rate hike since 2023, joining other major central banks in tightening policy to contain inflation driven by higher energy costs stemming from the war in the Middle East.

The decision reflects growing concern that the prolonged conflict could keep inflation high for longer. UK Consumer Price Index (CPI) inflation rose to 3.5% in September and is now projected to reach around 5% by the middle of 2027.

Although evidence of higher energy costs feeding through to broader prices and wages remains limited, policymakers judged that “the degree of inflationary pressure in the pipeline is now sufficient to warrant an increase in Bank Rate.” Stronger-than-expected economic activity also added to the case for tighter policy.

Governor Andrew Bailey signalled openness to another hike unless inflation risks ease. “Without news which softens the risks to inflationary pressures, I can see the argument for a further increase in rates,” Bailey said. Chief Economist Huw Pill similarly argued that a single 25 bps increase is unlikely to be sufficient.

However, the MPC stressed that “monetary policy is not on a pre-set path,” with future decisions depending on energy prices and how they feed through to wages, broader prices and economic activity. The Committee said it would adjust Bank Rate as needed to return CPI inflation to its 2% target in the medium term.