Pound Hits Highest Level Since Brexit Vote Ahead of Rate Decision

The British pound climbed to its highest overall level since the 2016 Brexit referendum this week, according to Bank of England data reported by BBC News. The move comes days before the Bank's rate-setting committee meets Thursday, where policymakers are widely expected to raise interest rates for the first time in more than three years.

The gain affects anyone who changes money for travel, imports goods priced in dollars or euros, or watches UK mortgage and savings rates tied to Bank of England policy.

How High Did the Pound Climb?

The Bank of England tracks sterling against a basket of 18 major world currencies using an index where 100 equals the pound's value in 2005. This week that index reached 86.4, matching its joint-highest level since the June 2016 Brexit vote, the BBC reported, citing Bank of England figures. The central bank is due to confirm the calculation officially on Thursday.

Against individual currencies, the pound traded at $1.3495, up 0.13%, and at €1.1979, down 0.16%, as of 04:15 GMT Thursday, according to the BBC report.

By the Numbers

• 86.4: The Bank of England's trade-weighted sterling index reading this week, versus a base of 100 in 2005.
• $1.3495: The pound-to-dollar exchange rate early Thursday, up 0.13% on the day.
• €1.1979: The pound-to-euro exchange rate early Thursday, down 0.16% on the day.
• 10 years: The time since sterling last stood this high, measured from the June 2016 Brexit referendum.

Why Is the Pound Rising Now?

Sterling fell sharply after the 2016 referendum and hit further lows during the Brexit negotiating period, the Covid pandemic, and the 2022 mini-Budget, the BBC reported. Traders cited to the BBC pointed to a different picture now: relative political stability in Britain, solid economic growth, and warmer relations with the European Union.

Jim O'Neill, an economist and former Treasury minister, told the BBC the rally does not surprise him. "People were, and to a lesser extent, are, underestimating the improving momentum in the UK," O'Neill said.

The BBC also noted the rise has come "ahead of an expected rise in interest rates," with sterling gaining against both the euro and the dollar in recent weeks.

What Happens Thursday With Interest Rates?

The Bank of England's nine-member Monetary Policy Committee meets Thursday to decide on interest rates. A rate increase — the first in more than three years — is widely expected, according to the BBC. Higher UK rates tend to attract investors seeking better returns on British assets, which can push the pound's value up further against other currencies.

The Bank is also set to confirm its sterling index figure that day, giving a fuller read on where the currency stands against the Brexit-era benchmark.

How Does a Stronger Pound Affect Households?

A stronger pound can help cool inflation because imported goods become cheaper in sterling terms, the BBC reported. It also increases buying power for UK consumers on imports and on overseas holidays, since the same amount of pounds converts to more dollars or euros.

The gains arrive alongside a mixed economic picture. UK growth so far this year has outperformed forecasts, the BBC reported, but there are signs that higher energy and fuel prices have begun to weigh on consumer confidence. For households, that means a stronger pound could ease some import and travel costs even as domestic energy bills remain a pressure point.

What to Watch

• Thursday's Bank of England decision: Markets expect the first rate rise in three years; the outcome will shape whether sterling's rally continues.
• Official confirmation of the 86.4 index reading: The Bank of England is due to confirm the sterling index calculation Thursday.
• Dollar and euro moves: Sterling was up against the dollar and down slightly against the euro early Thursday; swings in either currency could shift the overall index.
• Consumer confidence data: Watch for further signs that higher energy and fuel prices are affecting household spending, a trend the BBC flagged alongside otherwise strong UK growth figures.

For the full report and underlying figures, see the original BBC News story.

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