Pound Hits Highest Level Since Brexit Vote as Rate Rise Looms

The British pound has climbed to its strongest overall level since the 2016 Brexit referendum, according to Bank of England figures cited by the BBC. The move comes just ahead of a Bank of England interest rate decision in which the first rise in three years is widely expected.

For travelers and shoppers, a stronger pound generally stretches further on holidays abroad and imported goods. The gains have also left sterling exposed to what the Bank says on Thursday, analysts told The Independent.

The key numbers behind sterling's rise

• 86.4: This week's reading on the Bank of England's sterling index, which tracks the pound against a basket of 18 major currencies. The BBC described it as the joint highest since the June 2016 referendum. The Independent put it as the highest since the first quarter of 2016.
• 100: The index's base value, set in 2005. The Independent reported that it has not read above 100 since 2007.
• 78.08: The low the index reached in late 2022, according to The Independent. That was the period of the mini-Budget the BBC cited as one of sterling's weak moments.
• $1.3495: The pound's value against the dollar early Thursday, up 0.13% on the day, the BBC reported. The Independent said it is worth 3.5% more dollars than a year ago.
• €1.1979: The pound's value against the euro early Thursday, down 0.16% on the day, according to the BBC. The Independent gave €1.1981 and said that was up from €1.1334 a year earlier, a rise of more than 5.7%. The small gap likely reflects different timing.
• 95%: The probability markets assign to a rate rise on Thursday, according to George Vessey, a macro strategist at the payments firm Convera, quoted by The Independent.

What is behind the pound's climb

The BBC reported that sterling has risen notably in recent weeks against both the euro and the dollar, as investors anticipated higher UK interest rates. Some traders said the UK is now seen in a different light because of relative political stability, solid growth and closer ties with the European Union.

The BBC noted that sterling has reacted sharply to Brexit developments and political uncertainty in recent years. It fell significantly after the 2016 vote and hit further lows during the Brexit process, the Covid pandemic and the 2022 mini-Budget.

Jim O'Neill, an economist and former Treasury minister, told the BBC, "I'm not surprised." He said people were, and to a lesser extent still are, underestimating the improving momentum in the UK.

Why it matters for holidaymakers and shoppers

Both outlets said a stronger pound increases consumers' buying power on imports and on holidays. The BBC added that a higher pound can help rein in inflation.

The picture is not entirely positive. The BBC reported that UK growth this year has beaten all forecasts, but there are signs that higher energy and fuel prices have now weighed on consumer confidence.

The Independent noted that people usually compare the pound with individual currencies for everyday needs such as holidays, business or sending money abroad. The broader index shows overall strength rather than the rate against any single currency.

What happens next: the Bank's decision on Thursday

The Bank's nine-member Monetary Policy Committee announces its rate decision Thursday. The Bank is due to confirm the index reading after the vote result, the BBC and The Independent reported.

The Independent said the rise itself is close to certain, so attention is likely to fall on the vote split, the updated forecasts and the wording from members. Markets are pricing in almost exactly four rate rises, according to the report. Vessey said that amounts to almost 100 basis points of extra tightening through late 2027. A basis point is one-hundredth of a percentage point, so a single rate rise is typically 25 basis points.

Vessey said the rise is not the real story, in his view. He argued that if the Bank pushes back against what markets expect, the resulting fall in gilt yields could pull sterling lower. The two-year gilt yield, a gauge of short-term rate expectations, stood just under 4.73% on Thursday, The Independent reported.

The Independent added that most analysts do not expect four actual votes to raise rates, because bond markets can shift quickly with new economic data and global events.

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Around Prague, based on reporting by BBC News, BBC, The Independent