Bank of England Governor Andrew Bailey delivered a cautious message at his press conference on Wednesday, confirming that the Monetary Policy Committee voted 6–3 to keep the Bank Rate unchanged at 5.25% — the level it has held since August 2023, when the MPC completed the bulk of its most aggressive tightening cycle in decades.

Bailey outlined the Bank's current assessment of the UK economy, making several key points:

• Disinflation is proceeding, but at a slow pace.
• The labour market is weakening gradually, with a low hire rate contributing to rising unemployment.
• Markets are pricing in the possibility of interest rate increases, though Bailey pushed back against that interpretation.

The Governor acknowledged that elevated energy prices could eventually generate inflationary "second-round effects," but he stressed that there is little evidence such pressures have become embedded in wages or broader domestic pricing thus far. UK CPI peaked at 11.1% in October 2022 and has since retreated toward the Bank's 2% target, though services inflation and wage growth have remained stickier than the MPC would like.

He described the UK economy as subdued, noting that softening labour market conditions, easing domestic inflation pressures, and weak demand are limiting companies' ability to pass higher costs on to consumers. While the Bank stands ready to adjust policy should the outlook deteriorate — particularly if Middle East-related energy shocks prove more persistent — Bailey was clear that this is not the Bank's base case.

The sharpest signal came near the end of the press conference, when Bailey explicitly dismissed market speculation of a rate hike. He told investors not to walk away with the impression that the BoE is leaning toward tighter policy, stating that policymakers are "not talking about an insurance hike." He also noted that current market pricing reflects risk premia rather than the Bank's central expectations, and that the market's own base case remains for rates to stay on hold. The comments come against a backdrop where the European Central Bank has already begun cutting rates and the US Federal Reserve is widely expected to follow, placing the BoE among the major central banks navigating the final phase of the disinflation cycle.

In FX markets, GBP/USD tracked the broadly weaker US dollar higher, reclaiming its 100-day and 200-day moving averages near 1.3395 — a level that has become a key pivot both for today's session and going forward. Sterling initially broke below those moving averages back on July 21 and remained underneath them. After an early downside attempt failed today, the pair rebounded amid broad dollar selling.

The session high has extended toward the July 21 swing high at 1.34557. A sustained break above that level would target 1.34797, which corresponds to the highs set on July 17 and July 20.