Bank of England keeps interest rates at 4.75%

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The Bank of England kept interest rates steady at 4.75 percent as it sought to deal with stubborn inflation and weak growth.

In a six-to-three decision, most Monetary Policy Committee members warned that recent increases in wages and prices “increased the risk of persistent inflation”, dampening hopes for rapid interest rate cuts in 2025.

“We believe that a gradual approach to future interest rate cuts remains correct,” Andrew Bailey said. Bank of England governor. “But with increasing uncertainty in the economy, we cannot commit to when or how much we will cut interest rates next year.”

He added that the Bank of England needs to ensure it can achieve its 2 per cent inflation target on a sustainable basis.

Rob Wood, a British economist at Pantheon Macroeconomics, said the meeting minutes were “cautious and therefore more hawkish than the six-to-three title suggests.”

He added that inflation is likely to rise above 3 percent in the spring, “with very pronounced rises in prices that could destabilize inflation expectations that are already above average and rising.”

The Bank of England’s relatively tough language came a day after the US Federal Reserve indicated it would do so Slow the pace of interest rate cuts Next year amid signs of continued inflation.

The British central bank is facing increasing price pressures coupled with two consecutive months of falling GDP, complicating its own plans to cut interest rates next year.

Thursday’s decision, which is in line with expectations of economists polled by Reuters, comes a day after data showed this The UK inflation rate rose to 2.6 percent last month, from 2.3 percent in October.

But the three Monetary Policy Committee members who favor a quarter-point cut – Deputy Governors Dave Ramsden, Alan Taylor and Swati Dhingra – pointed to a “slowdown in demand” and a weak labor market.

“Given the evolving balance of risks, a less restrictive interest rate was justified,” they said.

Bank of England staff now expect zero growth in the final quarter of this year, weaker than expected in November.

The central bank said on Friday that “most indicators of activity in the UK in the near term declined.”

She added that risks to global growth and inflation due to geopolitical tensions and trade policy uncertainty had “increased materially” – a clear reference to US President-elect Donald Trump’s plans to increase tariffs on imports into the United States.

Sterling and gold yields fell slightly following the widely expected decision to suspend interest rates. The British pound fell to $1,261 after the Bank of England’s announcement, although it was still up 0.3 percent on the day.

The yield on interest rate-sensitive two-year government bonds fell to 4.46 percent.

However, yields on government debt have risen in recent weeks, as investors worried about inflation data and the Labor government’s budget plans for additional borrowing.

Traders still expect the Bank of England to cut by a quarter of a point next year – the same as it did just before Thursday’s decision. This compares to the four the market expected in October.

“The vote was more pessimistic than the market was expecting, suggesting it has gone too far recently in pricing in interest rate cuts for next year,” said Lee Hardman, senior currency strategist at MUFG.

The Bank of England cut interest rates by a quarter of a percentage point at its previous meeting in November, but indicated at the time that another cut was unlikely until 2025. It has cut rates twice in 2024 and is scheduled to announce its next rate decision in February 6.