EUR/GBP trades almost flat on Thursday, hovering close to its highest level in nearly a month as the British Pound (GBP) modestly outperforms the Euro (EUR) following the Bank of England’s (BoE) monetary policy decision.
At the time of writing, the pair trades around 0.8570, pausing a three-day winning streak
In its monetary policy statement, the central bank noted, “The impact of the energy shock on the UK economy remains uncertain. Monetary policy cannot influence energy prices but is being set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably.” The BoE left the Bank Rate unchanged at 3.75% in a 6-3 vote, with all members agreeing that energy-price risks were tilted to the upside. The majority said the tightening in financial conditions since the Middle East war began was providing “sufficient insurance” against inflation risks from higher energy prices.
The three members who backed a 25-basis-point hike argued that uncertainty over the conflict remained high and believed a proactive rate increase would reduce the risk of second-round effects setting in. BoE Governor Andrew Bailey said UK economic activity is subdued and the labour market is soft. He added that there is no evidence of second-round effects from higher energy prices so far, although it is too early to take much comfort from this.