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

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

Analysts expected interest rates to remain on hold at the December meeting as policymakers remained unsettled stubborn service inflation and wage growth.

The BOE has already raised its key rate this year from 5.25% to 4.75% in two quarters of interest rate moves.

Contrary to expectations, three members of the Monetary Policy Committee voted to cut interest rates and six voted to keep them. Economists polled by Reuters had predicted that only one member would vote for the cuts.

Sterling gained against the US dollar directly after the BOE’s announcement, with the dollar up 0.2% at 12:22 p.m. held a large rally Wednesday after the US Federal Reserve reduced interest rates by a quarter point but gave a more hawkish forecast for 2025. It gave up some gains Thursday morning.

In a statement, the BOE said UK headline inflation rose to 2.6% in November, slightly higher than previously expected, while services inflation remained “elevated”.

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

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

Money markets this week backed off bets on a further pace of cuts next year following the release of data on inflation and summer wage growth, and are now pricing in future cuts of about 50 basis points, below forecasts of about 70 basis points. worth cutting on monday.

Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, said: “The fragmented vote decision and the dovish tone of the minutes suggest that a February rate cut is still in play, if not over yet.” in email comments.

“The Bank of England risks backing itself into a corner on the pace of policy easing, as inflation drifting higher could make the timing of future rate cuts increasingly difficult, particularly if fears of stagflation materialize.”

This is a breaking news story and will be updated soon.