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The Bank of England printed in December 2024.
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LONDON – The Bank of England on Thursday ended its last meeting of the year with a decision to leave interest rates unchanged, after UK inflation climbed to an eight-month high.
Analysts widely expected a rate hold at the December meeting as policymakers remain concerned stubborn service inflation and wage growth.
The BOE has already taken its key rate from 5.25% to 4.75% this year in two quarter percentage point moves.
In a deviation from expectations, three members of the Monetary Policy Committee voted to reduce rates, while six were in favor of a net. Economists polled by Reuters had predicted that only one member would vote to cut.
Sterling pared gains against the US dollar directly after the BOE announcement, trading 0.25% higher at 12:40pm. organized a large demonstration on Wednesday after the US Federal Reserve cut interest rates by a quarter point but signaled a more hawkish outlook for 2025. He gave up some gains on Thursday morning.
GBP/USD.
In a statement, the BOE said the rise in UK inflation in November to 2.6% was slightly higher than expected, adding that services inflation remained “elevated”.
The BOE staff also lowered its economic forecast for the fourth quarter of 2024, which now predicts no growth, compared to the 0.3% expansion expected in its November report.
UK growth figures have come in weaker than expected in recent months, with the economy showing the surprise 0.1% contraction in October.
Money markets this week reduced bets on the pace of more trims next year after the publication of data on inflation and summer wage growth, and are now prices in about 50 points basis of the next cuts, from a perspective of about 70 basis points. worth cutting on Monday.
“More Divided Than Ever”
“The split vote decision and the dovish tone of the minutes suggest that a February rate cut remains very much in play, if not a done deal,” said Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales. in comments by email.
“The Bank of England risks tightening in a corner on the pace of policy easing because, with inflation likely to drift higher, the timing of future interest rate cuts could become increasingly more complex, especially if fears of stagflation become reality.”
Matthew Ryan, head of market strategy at Ebury, said BOE officials appeared “more divided than ever” on the path to rates, with doves focused on the fragile UK economy, while hawks favor a gradual approach because of the recent rise in inflation. The recent The UK budget and the threat of escalating trade tensions under US President Donald Trump next year will also be seen as inflationary risks, Ryan said.
Borrowing costs in the UK were higher after Thursday’s announcement, along with the yield 10-year government bonds 4 basis points to 4.596%. Gilt yields have been in focus this week as the UK’s risk premium over Germany’s has hit its highest level since 1990. German bond yields also rose on Thursday, with the yield on 10-year bunds – the euro zone benchmark – jumping by 5 basis points.
The European Central Bank last week cut rates by a quarter point in his fourth move of the year, signal a firm intention to enact more monetary easing in 2025.
