Pound hits highest level since Brexit as Bank of England expected to raise rates
The pound reached its strongest level in a decade as the Bank of England prepares to lift borrowing costs for the first time since 2023, while construction activity slides and markets react to US midterms.
At a glance
- The pound reached an effective exchange‑rate index of 86.5372, its highest since 23 June 2016.
- The Bank of England is expected to raise its policy rate from 3.75 % to 4 % at noon, its first hike since August 2023.
- UK construction PMI fell to 43.6 in October, with residential activity at a multi‑year low as housebuilding slumps.
**Pound hits record high ahead of BoE decision**
The pound surged to an effective exchange‑rate index of 86.5372 yesterday, its strongest level since the Brexit referendum on 23 June 2016. The move reflects expectations that the Bank of England will raise its policy rate from 3.75 % to 4 % at noon today, the first hike since August 2023.
**Rate hike widely anticipated, vote likely 8‑1**
Most policymakers expect a quarter‑point rise, with Berenberg senior UK economist Andrew Wishard forecasting an 8‑1 vote in favour and only Alan Taylor dissenting. PIMCO economist Peder Beck‑Friis said the increase is “fully priced by markets,” noting the BoE is responding to higher energy prices and a more hawkish macro outlook.
**Markets rally on rate and political news**
UK 10‑year gilt yields fell 4 basis points to below 5.1 %, their lowest since 28 August, while 30‑year yields also dropped. Gas prices fell 2 % to 214.2p a therm, the fourth daily decline, and oil traded near a two‑month low. The FTSE 100 jumped 119 points to 10 948, a three‑month high, as investors welcomed the US midterm results and a stronger pound.
**Construction sector slides sharply**
The October construction PMI fell to 43.6, the lowest since June, with residential activity at 35.1 – the weakest since December 2025. Housebuilding slumped amid low consumer confidence, higher borrowing costs and risk aversion.
**Outlook and other central banks**
Norway’s central bank kept its rate at 4.5 % but warned of possible future hikes. Money markets price up to three additional rises next year, though many economists doubt this. Deutsche Bank analysts predict a 6‑3 split in today’s vote and forecast inflation rising to 4.25 % by Q1 2027, with growth upgraded to 1.4 % for 2026.
**Overall sentiment**
Traders are watching not just the rate move but the BoE’s guidance on further tightening, as a unanimous hike and upward‑revised inflation projections could push sterling higher. The combination of a stronger pound, falling borrowing costs and a resilient labour market suggests modest restraint on economic activity.
Source: The Guardian Business.
Questions and answers
- Why is the pound strengthening today?
- Expectations of a Bank of England rate hike and a weaker dollar after the US midterms have lifted sterling.
- What key economic data are released today?
- UK construction PMI at 9.30am GMT and the Bank of England interest‑rate decision at noon GMT, followed by a press conference.
- How might the rate rise affect UK households?
- Higher borrowing costs could increase mortgage payments, while a stronger pound may lower import prices.
