Bank of England, photographed in December 2024.
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LONDON – The Bank of England ended its last board meeting of the year on Thursday with a decision to keep interest rates on hold as Britain’s inflation rate rose to an eight-month high.
Policymakers remain concerned about stubborn services inflation and wage growth, and analysts widely expected interest rates to be left unchanged at the December meeting.
The BOE has already raised its key policy rate this year by two quarterly percentage points from 5.25% to 4.75%.
Contrary to expectations, three members of the Monetary Policy Committee voted to cut the rate, and six voted to keep it unchanged. A Reuters poll of economists predicted only one member would vote in favor of the cuts.
Immediately after the BOE’s announcement, the pound pared its gains against the US dollar and was trading 0.25% higher as of 12:40pm. The dollar rebounded broadly on Wednesday after the US Federal Reserve cut interest rates by a quarter of a percentage point but gave a more hawkish outlook for 2025. It gave up some gains on Thursday morning.
GBP/USD.
The BoE said in a statement that the rise in UK headline inflation to 2.6% in November was slightly higher than previously expected, adding that services inflation remained “high”.
BOE staff also revised down its economic outlook for the fourth quarter of 2024, predicting no growth, compared to the 0.3% growth predicted in its November report.
UK growth has been weaker than expected in recent months, with the economy contracting by an unexpected 0.1% in October.
Money markets this week reduced bets on the pace of further interest rate cuts next year, cutting expectations for future rate cuts by about 70 basis points (bps) following the release of data on inflation and summer wage growth. It is currently being factored in. Equivalent to Monday’s cut.
“We are more divided than ever.”
Suren Tiloo, economics director at the Institute of Chartered Accountants in England and Wales, said: “The split decision of the vote and the dovish tone of the minutes suggest that February’s rate cut remains effective, even if no deal has yet been reached. That suggests something.” Comment by email.
“The Bank of England risks finding itself in a corner over the pace of policy easing, as inflation is likely to remain high and the timing of future interest rate cuts will be affected, particularly if stagflation concerns materialize. It can get more complicated.”
Matthew Ryan, head of market strategy at Everly, said BOE officials appeared to be “more divided than ever” on the future direction of interest rates, with dovs focused on the fragile UK economy. However, hawks said they supported a phased approach given the recent rise in inflation. Mr Ryan said Britain’s recent budget and the threat of escalating trade tensions next year under US President Donald Trump would also be seen as inflation risks.
UK borrowing costs rose following Thursday’s announcement, with yields set to 10 year government bond The index rose 4 basis points to 4.596%. Government bond yields are in the spotlight this week as the UK’s risk premium over Germany has reached its highest level since 1990. German bond yields also rose on Thursday, with the eurozone benchmark 10-year bond yield also spiking. 5 basis points.
Last week, the European Central Bank cut interest rates by a quarter of a percentage point for the fourth time this year, signaling firm intentions to further ease monetary policy in 2025.
