Sterling Soars as Rate Cuts Fade, UK Housing Heats Up

London: 7 February 2024 (TraderMade): The British pound found its footing today, boosted by surging house prices and solidifying the Bank of England's (BoE) hawkish stance on interest rates.

Key Takeaways

• Strong Housing Market: Annual house price growth accelerated to 2.5% in January, the highest rate in a year (according to Halifax data).
• BoE Leans Hawkish: Deputy Governor Breeden emphasizes holding current interest rates rather than considering further hikes.
• Sterling Gains Ground: Pound rises 0.31% vs. USD and 0.11% vs. EUR, recovering from recent lows.
• Rate Cut Chances Weaken: Money markets see a 61% probability of a June cut, down from earlier expectations.
• Uneven Recovery: Living standards are expected to improve overall, but poorer households face delayed recovery.

Housing Fuels Optimism

The latest Halifax report revealed a robust 2.5% year-on-year jump in house prices, indicating potential resilience in the UK housing market. This positive data resonates with the BoE's recent decision to maintain near-16-year-high interest rates - despite acknowledging future possibilities for cuts.

BoE Signals Caution

Further solidifying the central bank's stance, Deputy Governor Breeden shifted focus to how long current interest rates need to remain in place, suggesting a cautious approach toward potential cuts.

Pound Responds Positively

Sterling reacted favorably to these developments, climbing 0.31% against the USD and 0.11% against the EUR. This partially reverses recent declines and marks a brief return to near-one-week highs against the Euro.

GBPUSD pair surged 0.31% to 1.26371

GBPEUR pair followed suit by edging up 0.11% to 1.1726354

_{Please note that the rates are taken at about 02:06 PM GMT - compared to yesterday’s Close.}

Rate Cut Probability Uncertain

Money markets currently estimate a 61% chance of a BoE rate cut by June, reflecting a decrease from earlier projections. However, this possibility remains open as inflation cools down.

Uneven Recovery Ahead

While an overall improvement in living standards is expected, a report by a think tank warns that poorer households may not recover their pre-pandemic spending power until 2027, highlighting potential discrepancies in the economic rebound.

Looking Ahead

The trajectory of Sterling and future BoE decisions will depend on various factors, including upcoming economic data, inflation trends, and global market sentiment.