Pound firms as BoE offers markets shred of clarity

By Lucy Raitano

LONDON (Reuters) -The pound rose on Thursday after the Bank of England kept rates steady, citing a weaker jobs market and higher energy prices, which investors took as a clearer sign of the trajectory for UK rates, while other countries' likely paths are less obvious.

On a busy day for central bank decisions, the BoE left rates at 4.25%, as expected, and the minutes showed support was building among policymakers for a cut, possibly as soon as August, according to markets pricing.

The pound rose as much as 0.2% and was last 0.1% higher at $1.34325 and also 0.16% firmer against the euro, which traded at 85.40 pence..

The BoE's decision was welcomed by markets with the pound outperforming other risk currencies holding firm against the stronger dollar, which has drawn in safe-haven demand as the threat of a broader Middle East conflict looms over markets.

"Interest rates remain on a gradual downward path," Governor Andrew Bailey said. "The world is highly unpredictable."

Analysts said the split among BoE policymakers was telling, with six voting to leave rates on hold and three voting for a cut, compared with expectations for a 7-2 split.

"The one big takeaway is the 6-3 vote split. That’s dovish relative to consensus, and markets will take a signal from it, but I think it has very limited actual read-through to what the BoE will do moving forwards," said Nick Rees, head of macro research at Monex Europe.

"But it’s nice to have a relatively on-expectations central bank after the two we’ve had this morning."

The BoE's decision came hot on the heels of a rate cut by the Swiss National Bank earlier on Thursday that was in line with expectations, but smaller than some in the market had hoped for, given the strength of the franc this year, and a surprise cut from Norway's Norges Bank shortly after.

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Central banks everywhere are having to deal with the impact on their economies from U.S. President Donald Trump's tariffs, which in many cases, such as the franc and the Norwegian crown, have also resulted in currency strength that is hurting exports.

Uncertainty from U.S. trade policy has been compounded by Iran and Israel's conflict in the last week over Tehran's nuclear programme.

The BoE is in a tricky position too. Inflation cooled last month, but the rising cost of food and energy might fuel further price pressures.

Meanwhile, growth is stagnant and the government's constrained finances cast a shadow over the economic outlook.

"The past month has been pretty bad for the UK, surprises on the downside, inflation slightly lower than expected, growth was weaker ... it's all rather predictable, it appears, for the BoE," said Francesco Pesole, FX strategist at ING.

"The curve hasn't moved much because it's endorsing what the market is expecting; one meeting with a hold, one with a cut," Pesole said, referring to rate expectations in the fixed income market.

The BoE cut borrowing costs last month for the fourth time since August 2024.

Marcus Jennings, fixed income strategist at Schroders, said the June BoE meeting had proven to be one of the less volatile moments for the gilt market.

Two-year gilt yields fell to session lows at 3.886% after the BoE decision, before edging higher to 3.897%, and traded in a far smaller range than they did on the day of the May meeting, when they swung between a high of 3.935% and a low of 3.791%.

The FTSE 100 offered little reaction to the decision on Thursday, trading 0.3% lower on the day.

The pound has risen 7.4% against the greenback in 2025, helped by a rush away from U.S. assets because of heightened trade uncertainty.

(Reporting by Lucy RaitanoEditing by Amanda Cooper and Frances Kerry)