Sterling jumps 0.4% to $1.3429 as markets eye Bank of England rate hike
Key Facts
Sterling rose 0.4% to $1.3429 on Friday, making it the best-performing major currency of the day, according to a Reuters report. The rise came amid expectations that the Bank of England would raise interest rates the following week. Reuters said sterling also drew support from the British government's budget, which did not materially alter interest rate expectations. In contrast, FXStreet reported that the probability of a Federal Reserve rate hike in December fell to 70% from around 84% on Wednesday. The move puts the British currency at the center of diverging repricing of the monetary policy outlook in Britain and the United States.
Reuters reported that markets had priced in an almost certain Bank of England rate hike the following week, with another increase expected by February and a third by July. Market pricing also showed a 50% probability of a fourth increase by December 2027. These remain trader estimates, not a confirmed decision by the bank. In the latest decision available as of October 30, the Monetary Policy Committee kept the rate at 3.75% by a 6–3 vote. Three members voted for an increase of 0.25 percentage points to 4%, according to the Bank of England's minutes.
In the United States, bets on a December rate hike fell despite strong growth and inflation data. Growth exceeded the 3.0% forecast cited by FactSet, supported in part by consumer spending and investment related to artificial intelligence. In price data, the personal consumption expenditures index rose 3.6% year over year in September, after 3.4% in August. Reuters described stronger growth and accelerating inflation as bolstering the case for a U.S. increase in December, despite the decline in its market-implied probability.
Expectations for annual wage growth over the coming year held at 3.4% in the three months to October. Nationwide data showed annual house price growth slowing to 0.5% in October from 0.8% in September. On a monthly basis, prices were unchanged at -0.0% after seasonal adjustment. Nationwide's chief economist said economic uncertainty and a weak housing market, along with expectations of higher interest rates, had kept upward pressure on the market rates that underpin mortgage costs.
Official inflation data show that transport was the largest upward contributor to the annual change in the consumer price index between August and September, as annual transport inflation rose to 6.6% from 4.6%. In its September minutes, the Bank of England said the ongoing conflict in the Middle East had raised energy prices and increased uncertainty around the inflation outlook, and that risks were tilted more to the upside than they had been at the July report. Based on energy prices through September 14, the bank projected inflation of about 3¾% in the fourth quarter of 2026, compared with 3.2% at the July report, and a level slightly above 4% in the first quarter of 2027. As for the currency's performance, Reuters expected sterling to post a monthly gain of 1% in October, its first monthly rise since August, despite being down 0.6% since the start of 2026 through October 30. The Bank of England will announce its decision, publish the Monetary Policy Committee meeting minutes and release its next Monetary Policy Report on November 5, 2026.