Naira Stable Against British Pound, Bank of England Keeps Rates Unchanged

The naira was relatively stable against the British pound as the Bank of England left the UK’s interest rates unchanged.

The British pound settled at N2035/£ at the official market on Thursday.

Recent price movements show that the Nigerian currency has remained in a consolidation phase in the unofficial market, ranging between N2,200/£ and N2,210/£ this month

The CBN’s decision to float the naira and harmonize multiple rates also improved sentiment in the real sector

Naira may see some bullish momentum in the short term, partly because of improved foreign exchange inflows and a moderation in Nigeria’s inflation readings. Nigeria’s inflation rate dropped for the fifth consecutive month, giving the populace, who have been hit hard by persistently high living costs, some relief.

According to NBS data, Nigeria’s inflation rate fell to 20.12% in August.

Historic High: Nigeria-UK Trade Hits N16 Trillion  

Richard Montgomery, the British High Commissioner to Nigeria, announced that trade between Nigeria and Britain has reached an all-time high, currently valued at £7.9 billion (approximately N16 trillion).

Montgomery emphasized that the UK-Nigeria Enhanced Trade and Investment Partnership (ETIP) enhances trade relations by removing non-tariff barriers to trade and investment.

He explained that the ETIP provides favorable trading conditions and tariff reductions for Nigerian goods, which, along with support from the Developing Countries Trading Scheme (DCTS), is expected to increase trade volume.

“I am very pleased with our most recent trade statistics. The trajectory is extremely positive,” he stated.

Montgomery highlighted that Britain has advanced manufacturing capabilities and innovative energy solutions within the creative economy that are relevant and valuable in the Nigerian context. He expressed enthusiasm for the ETIP, describing it as a mutually agreed framework under which the UK and Nigerian governments will collaborate on specific sectors and issues.

BoE’s Steady Hand: Interest Rates Unchanged in Inflation Fight 

The Bank of England has decided to keep interest rates at 4 percent and did not take part in today’s meeting.

This decision was anticipated, following a quarter-point reduction in August, leading to minimal movement in the British pound. In the recent vote, which resulted in a 7-2 split, two members advocated for a quarter-point decrease.

• Swati Dhingra and Alan Taylor, members of the BoE Monetary Policy Committee (MPC), voted in favor of additional monetary policy expansion, while the other members voted in favor of the status quo.
• Taylor was expected to vote in favor of lowering interest rates, given that he said in his address to the Treasury Committee of the House of Commons earlier this month that monetary policy must be further loosened to address weak economic growth and that high inflation is unlikely to last.
• Additionally, he stated that in the current situation, “inflation actually undershooting the target and economic activity weak or in recession” could result from restrictive monetary policy. A “gradual and careful” approach to the additional removal of monetary policy restraint has been maintained by BoE Governor Andrew Bailey in the interim.

The British Apex bank took an unprecedented two rounds to decide to lower rates, with a narrow 5-4 vote last month. These divided opinions showcase internal disagreements within the Bank of England regarding the future of its monetary policy.

The British central bank is striving to balance the need to ease economic conditions and lower interest rates amid a slowdown in the job market, while simultaneously addressing rising inflation, which supports the case for maintaining current rates.

• Inflation has surged to 3.8 percent, nearly double the Bank of England’s target of 2 percent as of August, making it a critical issue that cannot be overlooked. If inflation does not decline significantly, the Bank may have to wait until 2026 to lower rates.
• The UK could already be experiencing stagflation, characterized by weak growth and persistently high inflation. Although the central bank is hesitant to reduce rates given the current inflation rate of nearly 4 percent, it may have no choice but to act if labor market conditions deteriorate further before the end of the year.

The Bank of England is expected to maintain rates for now, so the upcoming job report on Tuesday is unlikely to affect this decision; however, it could influence the rate decisions in November.

The US Dollar Index, which gauged the greenback’s strength against a basket of six major currencies, was trading higher at around 97.4 at the last trading session of the week. This increase can be attributed to the Federal Reserve’s anticipated rate cuts and its lack of urgency to lower borrowing costs in the coming months.

The Federal Reserve implemented a quarter-point rate cut, which was expected and marked the first reduction since December 2024.  The cooling labor market was identified as the primary reason for this decision, with Fed Chair Powell reiterating his concerns about the situation during his press conference.