Bank of England keeps interest rates at 4.75%

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The Bank of England kept interest rates unchanged at 4.75% as it sought to tackle both stubborn inflation and lackluster growth.

In a 6-3 decision, most members of the Monetary Policy Committee warned that recent increases in wages and prices had “added to the risk of persistent inflation,” dampening hopes for a cut. Rapid interest rates by 2025.

Andrew Bailey, said: “We think the gradual approach to future rate cuts remains the right one.” BoE governor. “But with growing economic uncertainty, we cannot commit to the timing and extent of interest rate cuts next year.”

He added that the BoE needs to ensure it can meet “the 2% inflation target on a sustainable basis”.

Rob Wood, UK economist at Pantheon Macro Economics, said the minutes were “more cautious and therefore more hawkish than the headline six to three”.

He added that inflation will likely rise above 3% in the spring, “with marked price increases likely to destabilize inflation expectations that are already above average and rising.”

The BoE’s relatively tough language comes a day after the US Federal Reserve signaled that it would slow down the pace of interest rate cuts next year amid signs of persistent inflation.

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

Thursday’s decision, in line with forecasts from economists polled by Reuters, came a day after data showed UK inflation rises to 2.6% last month, from 2.3% in October.

But three MPC members backed a quarter-point reduction – deputy governors Dave Ramsden, Alan Taylor and Swati Dhingra – citing “sluggish demand” and a weaker labor market.

“With increasing risk balance, less restrictive policy rates are warranted,” they said.

BoE staff now expect zero growth in the final quarter of this year, weaker than forecast in November.

“Most indicators of short-term UK activity fell,” the central bank said on Friday.

It added that risks to global growth and inflation from geopolitical tensions and trade policy uncertainty have “increased significantly” – an apparent reference to plans to increase taxes on goods imported into the US by US President-elect Donald Trump.

Sterling and gold-plated yields fell slightly after the widely expected decision to keep interest rates unchanged. Sterling fell to $1.261 after the BoE announcement, although it was still up 0.3% on the day.

Yields on interest rate-sensitive 2-year government bonds fell to 4.46%.

However, in recent weeks, government bond yields have risen as investors are nervous about inflation data and the Labor government’s plans to borrow more from the budget.

Traders still expect the BoE to make two 25-point cuts next year – as it did just before Thursday’s decision. That compares with four that the market recently expected in October.

Lee Hardman, senior currency analyst at MUFG, said: “The vote was more moderate than markets expected, suggesting it has gone too far recently to price in a rate cut for next year ”.

The BoE cut interest rates by a quarter of a point at its previous meeting in November, but at the time signaled that another rate cut was unlikely until 2025. The BoE cut interest rates two times in 2024 and is expected to announce the next interest rate decision on February 6.