The Bank of England (BoE) kept rates on hold, but comments in the statement and minutes suggest officials are getting closer to cutting interest rates despite some recent unwelcome services inflation figures. The latest post-meeting statement is slightly dovish, ING Developed Markets Economist James Smith notes.

Pund Sterling to trade back under 1.2500

“The Bank of England has voted 7-2 in favour of keeping rates at 5.25% for another month. No surprises there, but in the limited comments we got from the Bank today, this is a statement that reads more dovish than we suspect many investors might have expected.”

“The probability of an August rate cut has inched up from 40% to 60% in the minutes since. The fact that there wasn't a larger repricing is probably because the Bank didn't change its forward guidance. And for us, August rate cut is our base case.”

“News that the views of some of those voting for unchanged rates today were ‘finely balanced’ was enough to generate a little bullish steepening of the Gilt curve and a modestly weaker pound. The minutes are slightly bearish for the pound. We expect it to trade back under 1.25