The Bank of England pictured in December 2024.
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LONDON — The Bank of England ended its final meeting of the year on Thursday with a decision to leave interest rates unchanged after inflation in Britain rose to its highest level in eight months.
Analysts widely expected interest rates to remain unchanged at the December meeting, which has raised concerns among policymakers persistent service inflation and wage growth.
The BOE has already raised its base rate this year from 5.25% to 4.75% in two quarter-percentage-point moves.
Contrary to expectations, three members of the Monetary Policy Committee voted for reducing interest rates, and six were for maintaining them. Economists polled by Reuters predicted that only one member would vote for a cut.
Sterling pared gains against the US dollar in the immediate aftermath of the BOE announcement, rising 0.25% at 12:40. Dollar organized a wide demonstration on Wednesday after the US Federal Reserve cut interest rates by a quarter of a point but signaled a more hawkish outlook for 2025. Some gains were lost on Thursday morning.
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In its statement, the BOE said the rise in UK headline inflation in November to 2.6% was slightly higher than previously expected, adding that inflation in services remained “elevated”.
BOE staff also lowered their economic forecast for the fourth quarter of 2024, now forecasting no growth compared to the 0.3% growth projected in the November report.
UK economic growth figures have been weaker than expected in recent months, with the economy recording approx surprise: 0.1% shrinkage. in October.
Money markets are this week backing down on expectations for the pace of further cuts next year following the release of inflation and wage growth data in the summer, and are now pricing in around 50 basis points of upcoming cuts, compared with a forecast of around 70 basis points. value of cuts on Monday.
“More Divided Than Ever”
“The split vote decision and the dovish tone of the minutes suggest that the February rate cut remains largely material, if not yet finalized,” said Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, in comments emailed to by e-mail.
“The Bank of England risks painting itself into a corner on the pace of policy easing because, with inflation likely to rise further, the timing of future rate cuts may become increasingly complex, especially if fears of stagflation become a reality.”
Matthew Ryan, head of market strategy at Ebury, said BOE officials appeared “more divided than ever” on the future path of interest rates, with doves focusing on the UK's fragile economy while hawks favored a gradual approach due to to the recent increase in inflation. Recent UK budget Ryan said the threat of escalating trade tensions under US President Donald Trump next year would also be seen as an inflation risk.
Borrowing costs in the UK rose after Thursday's announcement and yields rose 10-year treasury bonds an increase of 4 basis points to 4.596%. Government bond yields were in focus this week as the UK's risk premium compared with Germany's risk premium rose to its highest level since 1990. German bond yields also rose on Thursday, with the yield on the 10-year Bund – an indicator benchmark for the euro area – increased by 5 basis points.
European Central Bank last week cut interest rates by a quarter of a point in the fourth such move in a year, signaling firm intent to introduce further monetary easing in 2025.