GBP Selloff as BoE Keeps Rates Unchanged Amid Dovish Sentiment

The Bank of England (BoE) kept its key interest rate at 3.75%, sparking a selloff in the pound sterling as investors focus on dovish statements from the central bank.

The BoE's decision was in line with expectations, but the market took heart from comments made by Martin Taylor that policy is already 'restrictive.' This sentiment was echoed by the BoE, which reiterated its stance that there is still no strong evidence of second-round effects on inflation.

Meanwhile, the BoE has revised its inflation forecast upward, with inflation expected to reach 3.75% by the end of 2026 and slightly above 4% in the first quarter of 2027. Governor Andrew Bailey warned that a protracted conflict in the Middle East could force a tightening of monetary policy.

The BoE's long-term plan to reduce its bond portfolio by 368 billion GBP by 2034 has been seen as conservative, with active sales amounting to only 20 billion GBP per year. This lack of aggressive sell-off has calmed the British debt market.