In this article I'll tell you if the pound will rise when the Bank of England lifts UK interest rates.
Yes, the pound will almost certainly rise when the Bank of England (BoE) lifts UK interest rates, above their current all-time low of 0.25%. This is for 2 reasons. First, sterling will climb, because when the BoE hikes interest rates, this signals that the UK economy is strong enough to thrive without so much monetary support. This bodes well for the UK's economic outlook.
Second, the pound will also jump when the UK's central bank lifts borrowing costs, because higher interest rates make investing in the UK more profitable. In turn, this lifts demand for the pound, boosting sterling!
1. Pound rises, as Bank of England looks set to lift interest rates.
Already for instance, sterling has risen from as low as 1.0790 versus the euro on August 29th, up to 1.1407 on September 29th. That's a rise of +5.71%, or over +6 cents, in just a month! If you intend to transfer money from the UK to a country in the Eurozone, perhaps to buy a property or emigrate, or as part of your business, this stronger pound is hence highly favourable for you.
When you exchange currencies, you'll receive a much higher euro total than if you'd done so just a month ago. Sterling's rise is largely because the Bank of England looks set to lift interest rates.
2. Bank of England signals November interest rate, boosting the pound.
The pound has jumped, in particular because the Bank of England has strongly hinted that it will lift UK interest rates as soon as November. To be specific, the BoE said in the minutes of its last interest rate meeting that 'some withdrawal of monetary stimulus was likely to be appropriate over the coming months.'
What's more, since then central bank governor Mark Carney has added that borrowing costs may rise in the 'relatively near term', while BoE chief economist Andy Haldane has added that higher interest rates are 'a good news story'. So this may boost the pound!
With all this in mind, yes, the pound will almost certainly rise when the Bank of England lifts UK interest rates. This is because higher interest rates point to UK economic strength, and make investing in the UK more profitable. What's more, the BoE has signalled that interest rates will rise above their current all-time low of 0.25% as soon as November, in turn boosting the pound!
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email email@example.com.