The Bank of England looks set to hold interest rates at 4.75% on Thursday, despite signs of a slowing economy, as persistent inflation pressures limit it to a “gradual” approach towards cutting borrowing costs.
All 71 economists polled by Reuters said rates would stay unchanged for now. Most expect a quarter-point cut only on Feb. 6 after its next meeting, followed by three more cuts by the end of 2025.
Financial markets are much less certain about the extent of rate cuts next year, following data on Tuesday that showed an unexpected acceleration of wage growth. Investors late on Wednesday priced in just a 50% chance of a rate cut in February and only two cuts in 2025 as a whole.
By contrast, the European Central Bank has cut rates by 1 percentage point in 2024 and is expected by markets to lower them by another percentage point in 2025 as the euro zone economy is hit by political turmoil and the risk of a US trade war.
The divergence in interest rate outlooks has pushed the difference in yields between British and German 10-year government bonds to its widest since 1990.While the US Federal Reserve only expects to lower rates twice next year, its rate cut on Wednesday added up to a cumulative 1 percentage point of loosening in 2024, double the speed of the BoE so far.
Governor Andrew Bailey this month reaffirmed the BoE’s message that “a gradual approach to removing policy restraint remains appropriate”.
US stocks plunged on Wednesday, with all three major indexes posting their biggest daily decline in months, after the Federal Reserve cut interest rates but signaled a slower pace of rate cuts to come.
Most economists polled by Reuters expect an 8-1 Monetary Policy Committee vote to keep rates unchanged.
Swati Dhingra, who has called for faster cuts, is seen as the likeliest dissenter.
