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A festive Bank of England cut borrowing costs for UK households and business yesterday
Sterling gained yesterday as the scale of resistance to yesterday’s interest rate cut at the Bank of England surprised the markets. With four of the nine-member Monetary Policy Committee (MPC) resisting the call, and only the governor’s casting vote swinging the balance in favour of a quarter-point cut, the markets have cut their expectations of more interest rate cuts in early 2026.
So the pound has gained around a third of a cent on the euro, whole other gains fell back over the course of the day. This morning there has been mixed reports on consumer mood. The GfK Consumer Confidence reading came in overnight and at -17 for the UK was still subdued, but improving and better than expected. Germany’s reading, however, continued to be little short of disastrous, at -26.9 its worst since early 2024.
Then this morning we’ve had Retail Sales from the UK, which declined in November by 0.1%. This was ahead of the Budget, which we already know was muting demand, but was below expectations nonetheless.
But yesterday was all about the interest rates. The governor of the Bank of England said he expected inflation to come close to the 2% target in mid-2026, helped by measures in the recent Budget such as freezing fuel duty and rail fares. But the more hawkish members of the MPC clearly need more convincing, with wages still rising by some 4.7% per year, as we heard on Monday.
The big news overnight was the €90bn loan agreed by the EU to Ukraine, after their failure to agree to use Russian assets held within the EU. This should enable Ukraine to continue its fight against Russia, and for the EU allows the bloc to maintain an appearance of unity.
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GBP: Pound remains positive
It was a sea of green on the computer screens for sterling yesterday after the interest rate decision, but this morning’s Retail Sales data again shines a light on a fading economy. There is a little more data coming down the track ahead of Christmas, with a final GDP reading on Monday a potential sting in the tale ahead of the holidays.
GBP/USD past year
EUR: Euro slips slightly as ECB holds
Surprising no-one, the European Central Bank kept its interest rate on hold yesterday, but the single currency weakened anyway. We have more economic data coming out today, after a disappointing consumer confidence reading for Germany, but then it’s all quiet until inflation readings on 30 December.
GBP/EUR past year
USD: Positivity for US dollar
There were sharp gains for the dollar against the euro and yen yesterday, alongside losses against the pound. Some interesting readings are coming up this afternoon to round off the week, including home sales, which have been running high in recent months, plus the Michigan consumer sentiment index.
USD/GBP past year
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