Market Watch: Bank Of England Rate Decision

The Bank of England is expected to raise interest rates by 25 basis points from 5% to 5.25%, a 15-year high, despite the declining inflation rates, as seen below. However, inflation is still way above the bank’s target of 2% forcing the BoE to continue its monetary tightening cycle. CPI in the United Kingdom in June 2023 came below expectations, declining to 7.9%, representing the lowest level since March 2022. Also, the core rate, which excludes volatile components, slowed to 6.9% from May's 31-year high of 7.1%.



UK Interest Rate chart


Figure 1 UK Interest Rate  (1990-2023)| Source: Trading Economics based on Bank of England



The central bank’s main dilemma is to stabilize prices while maintaining economic growth. However, during the UK’s current economic challenges, inflation becomes a priority. The British economy has been growing but at a slow pace during the past two years with the latest figure in Q1 of 2023 showing 0.1% growth QoQ, remaining stagnant from the prior quarter. However, the probability of a recession is still on the table.


The market is awaiting the Bank of England’s next decision. A higher-than-expected rate is usually positive for the country’s currency, and vice versa. When expectations are met, it gives investors confidence in the economy as they make their investing decisions.




The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice.  Any view expressed does not constitute a personal recommendation or solicitation to buy or sell.  The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI.  Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.