Bank of England keeps rates on hold, but vote split surprises markets

LONDON – The Bank of England closed its last meeting of the year on Thursday with a decision to leave interest rates unchanged, after UK inflation rose to an eight-month high.

Analysts had widely expected a rate hold at the December meeting as policymakers remain concerned service inflation and wage growth.

The BOE has already taken its key rate from 5.25% to 4.75% this year in two quarter-point moves.

Contrary to expectations, three members of the Monetary Policy Committee voted in favor of cutting rates, while six were in favor of keeping them. Economists polled by Reuters had forecast that only one member would vote to cut.

Sterling pared gains against the US dollar directly after the BOE announcement, trading up 0.2% as of 12:22pm held a large rally Wednesday after the US Federal Reserve cut interest rates by a quarter of a point but signaled a more balanced outlook for 2025. It gave up some gains on Thursday morning.

In a statement, the BOE said the rise in UK headline inflation in November to 2.6% was slightly higher than previously expected, adding that services inflation held ” elevated”.

BOE staff also downgraded their economic forecasts for the fourth quarter of 2024, now predicting no growth, compared to the 0.3% expansion forecast in their November report.

UK growth figures have been weaker than expected in recent months, with the economy in a surprise contraction of 0.1%. in October

Money markets this week trimmed bets on the pace of further cuts next year after the release of data on inflation and summer wage growth, and are now pricing in roughly 50 basis points from next cuts, below an outlook of about 70 basis points. worth the cuts on Monday.

“The split vote decision and the dovish tone of the minutes suggest that an interest rate cut in February remains very much on the cards, if it hasn’t already,” said Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales. to comments sent by email.

“The Bank of England risks collapsing on the pace of policy easing because, with inflation likely to rise, the timing of future interest rate cuts could become increasingly complex , especially if fears of stagnation come true.”

This is breaking news and will be updated shortly.