The price of the EURGBP is taking a pause after the recent euro rally and may move lower again if retail sales can bounce.
UK retail sales will be released at 14:00pm HKT and could boost the British currency further. However, that is expected to show a drop of -0.5% from the previous month, which would be sharply lower from a 1.2% gain in April’s figure.
The view at the BoE was that inflation at 3.4%, would remain high over the coming months but head back down next year, driven by the rise in unemployment. That should hurt wage demands and lower inflation. The recent move higher in oil has the potential to offset that.
“Interest rates remain on a gradual downward path, although we’ve left them on hold today,” governor Andrew Bailey said. “The world is highly unpredictable.”
Since its first quarter-point rate cut last August from a 16-year high of 5.25%, the Bank of England has remained cautious, reducing interest rates every three months. On the current path, the next reduction would be in August.
Economists believe that remains the most likely outcome but are warning that the geopolitical event risk could cause a reassessment.
“Further escalation of the conflict in the Middle East could push up UK inflation, which could see the Bank move more cautiously,” said Felix Feather at Aberdeen Asset.
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