Story Highlight
– BoE holds interest rates steady at 3.75%.
– Inflation rose to 3.4% in December, exceeding expectations.
– Four members advocated for a 0.25% rate cut.
– Governor predicts inflation drop by April 2025.
– Monetary policy risks perceived to be reducing.
Full Story
The Bank of England (BoE) has decided to maintain the interest rate at 3.75%, following a rise in inflation to 3.4% in December. The decision was made by the Monetary Policy Committee (MPC), which voted five members in favour of holding the rate steady, while four members preferred a reduction to 3.5%.
This latest decision comes after the Bank had previously reduced the rate from 4% to 3.75% in December, marking the lowest rate since February 2023 and the fourth reduction within that year. The prior cut was influenced by a surprise decline in inflation, which dropped to 3.2% in November.
The recent inflation increase resulted from rising costs in food, tobacco, and airfares, exceeding economists’ expectations. Despite this upward movement, the BoE anticipates inflation will return to around the 2% target by April, supported by developments in energy prices related to the upcoming Budget for 2025.
Governor Andrew Bailey commented, “My policy decision is based on accumulating evidence. Despite all the uncertainties in the world, we are not currently facing a situation in which monetary policy is being hit by big new shocks. Activity is subdued against a background of inflation returning to the target. I can see the case for the output gap having widened, but by how much is uncertain.”
He also remarked on the improved perception of short-term economic activity based on survey data, while noting that his central outlook aligns with expectations of weaker demand, indicating a more balanced risk assessment. “I expect to see quite a sharp drop in inflation over the coming months,” he added.
Regarding wage settlements, Governor Bailey indicated that while he feels more confident in the overall trajectory of wage disinflation, the timing and extent to which the anticipated decline in inflation will affect wage agreements remains uncertain. He concluded, “Overall, the risks from inflation persistence appear to have continued to reduce. I therefore see scope for some further easing of policy. This does not mean that I expect to cut the bank rate at any particular meeting. I will go into the coming meetings asking whether a cut is justified.”
