Kristina
The Bank of England has opted to keep interest rates unchanged, citing persistent inflation concerns and signaling a cautious approach to future rate cuts. Despite this, the central bank revised its economic growth forecast for the final quarter of the year to zero, down from an earlier estimate of 0.3 percent.
In a 6-3 decision on Thursday, the Monetary Policy Committee (MPC) maintained the benchmark rate at 4.75 percent. The majority warned that rising wages and prices increased the risk of inflationary persistence, limiting the scope for rapid monetary easing.
Bank of England Governor Andrew Bailey stated, “We think a gradual approach to future interest rate cuts remains right. But with heightened uncertainty in the economy, we can’t commit to when or by how much we will cut rates in the coming year.”
The central bank’s outlook reflects a challenging economic environment, with projections of stagnant growth and inflation concerns looming. UK inflation rose to 2.6 percent in November from 2.3 percent in October, while wages and the national living wage continue to rise, adding to employment costs.
Some MPC members, including Deputy Governor Dave Ramsden, supported a quarter-point rate cut, citing weak demand and a softer labor market. However, the majority cautioned against rapid easing due to the risk of entrenched inflationary pressures.
Sterling fell to $1.255 following the announcement, and gilt yields declined as investors reacted to the larger-than-expected number of MPC members advocating for immediate rate reductions. Markets are now pricing in two quarter-point rate cuts for 2025, a significant shift from expectations earlier in the year.
The Bank of England’s announcement comes amid global economic uncertainty, including heightened geopolitical risks and ongoing trade policy challenges. With the chancellor facing a constrained fiscal position, the UK’s economic path remains fraught with challenges as policymakers strive to balance growth, inflation, and fiscal discipline.
