It was a cautionary act on the part of Her Majesty's government; it more or less was a step towards recognition, and would have been followed by complete diplomatic recognition had the war turned strongly in favour of the Confederacy.

The economic primacy of Great Britain in those days required British merchants to have unrestricted markets, and the American conflict caught Britain in a difficult situation. She did not want to lose her American markets or the opportunities of economic ties, whatever the result of the war. With this being the case, she needed to make some concession to the Confederacy without angering the Union. The status of belligerent allowed British trade to continue as best it might, faced with the Union blockade of southern ports, and also allowed the Confederacy to purchase weaponry and supplies from Britain.

Until the very end, it was the hope of the Confederacy that European powers would become involved in the conflict, just as they had during the American war of Independence against Britain itself nearly a century earlier. As the tide turned against the South, and it became clear that they would lose the war, Southern diplomacy tried in vain to coaxe Britain especially into the conflict, but Britain was growing cold to the Confederacy.

The economic benefits of trading with the Confederacy were increasingly negligible, particularly with the effective blockade in place, and with the North experiencing an industrial and economic boom brought on by expansion to meet the needs of the war, Britain naturally gravitated in its support to the North.

In the end, supporting the Confederacy just wasn't a good enough bargain for Britain.