By Amanda Cooper and Samuel Indyk
LONDON (Reuters) -The pound received a lift on Thursday from a surprising split in votes on interest rates at the Bank of England while shares in UK companies rallied after U.S. President Donald Trump said he had struck a “full and comprehensive” trade deal with Britain.
The BoE cut its main rate by a quarter of a point to 4.25%, as widely expected, but there was a surprising three-way split among policymakers, emphasising how Trump’s tariffs continue to plague the economic outlook.
Sterling rose nearly 0.4% on the day to $1.333, from a session low of $1.3242 immediately before the decision. Two policymakers voted to leave rates unchanged, prompting traders to trim their bets on the chances of the BoE delivering another three rate cuts this year.
“Two members, including chief economist Huw Pill, preferred to leave rates unchanged. That may reduce speculation as to a possible back-to-back reduction at next month’s meeting,” said Investec’s chief UK economist, Philip Shaw.
UK government bonds came under pressure, pushing up the yield on rate-sensitive two-year gilts by seven basis points on the day to 3.874%, from 3.791% ahead of the BoE decision.
The pound had received a boost from an overnight report by the New York Times that flagged the possible trade deal between Britain and the United States.
On his Truth Social platform on Thursday, Trump said he would hold a press conference later and that the agreement would “cement the relationship between the United States and the United Kingdom for many years to come”.
British Prime Minister Keir Starmer will also provide an update later on Thursday, a spokesperson for his office said.
A deal would be Britain’s second within a week after it clinched a free trade pact with India.
London’s FTSE 250 index of midcap companies, which are more sensitive to the domestic economy, rose 1.1% to outperform the large-cap FTSE 100 index, which rose by only 0.3%.
The globally focused FTSE 100 on Tuesday racked up 16 straight days of gains for its longest winning streak on record, powered by a solid first-quarter earnings season and optimism over a thawing in global trade tensions.
“The UK has struggled to make deals with different countries following the exit from the EU and has been waiting on a deal with the U.S. for a long time. It definitely matters, but lets see what the deal is going to be,” said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.
“I’m cautiously optimistic. On balance I would think it’s positive for the pound.”
The pound was last up 0.3% against the euro at 84.78 pence per euro.
Unlike many of its major trading partners, the United States has a small trading surplus with Britain, to the tune of some $12 billion. Britain’s main U.S. goods exports are in the form of cars, steel and pharmaceuticals.
Shares in energy companies were the prime gainers on the mid-cap index while the FTSE 100 held in positive territory thanks to a rally in the aerospace and defence sector while drugmakers Astrazeneca and GSK proved the biggest drags.
(Additional reporting by Lucy RaitanoEditing by Bernadette Baum and David Goodman)
