Breaking: BoE maintains bank rate at 4.75% as expected
|The Bank of England (BoE) announced on Thursday that it left the policy rate unchanged at 4.75% following the December policy meeting, as expected. Policymakers voted 6-3 in favor of holding rates steady, with Dhingra, Ramsden and Taylor preferring a 25 basis points rate cut.
Follow our live coverage of the Bank of England interest rate decision and the market reaction.
BoE policy statement highlights
"Due to heightened uncertainty in the economy we can't commit to when or by how much we will cut rates in 2025."
"A gradual approach to future interest rate cuts remains right."
"5 of 6 MPC who voted to keep rates on hold saw stronger case for gradual approach and to avoid commitments on rate cut timing."
"3 MPC who backed cut said sluggish demand created risk of unduly large output gap and CPI too far below 2% in medium term."
"CPI slightly higher than expected in November, expected to continue to rise slightly (Nov. forecast: Q4 CPI 2.4%)."
"Some household inflation expectations have increased, business inflation expectations consistent with only small fall."
"Private sector regular wage growth has picked up quite sharply, but tends to be more volatile."
"Labour market is broadly in balance, significant uncertainty remains around developments."
"Businesses expect average pay increases of 3-4% in 2025."
"Trade policy uncertainty has increased materially, scale and direction of impact on UK may be unclear for some time."
Market reaction to BoE policy announcements
Pound Sterling came under bearish pressure with the immediate reaction and GBP/USD erased a large portion of its daily gains. At the time of press, the pair was trading slightly below 1.2600, still rising 0.2% on the day.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.94% | 0.17% | 2.02% | 1.02% | 1.77% | 1.92% | 0.30% | |
| EUR | -0.94% | -0.71% | 1.16% | 0.15% | 1.00% | 1.04% | -0.57% | |
| GBP | -0.17% | 0.71% | 1.76% | 0.87% | 1.72% | 1.75% | 0.15% | |
| JPY | -2.02% | -1.16% | -1.76% | -0.98% | -0.23% | -0.07% | -1.59% | |
| CAD | -1.02% | -0.15% | -0.87% | 0.98% | 0.80% | 0.88% | -0.71% | |
| AUD | -1.77% | -1.00% | -1.72% | 0.23% | -0.80% | 0.05% | -1.55% | |
| NZD | -1.92% | -1.04% | -1.75% | 0.07% | -0.88% | -0.05% | -1.60% | |
| CHF | -0.30% | 0.57% | -0.15% | 1.59% | 0.71% | 1.55% | 1.60% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
This section below was published as a preview of the Bank of England's (BoE) monetary policy decisions at 06:00 GMT.
- The Bank of England is set to keep the interest rate on hold, hinting at 2025 action.
- UK inflation accelerated further in November, albeit within expectations.
- GBP/USD trades within a well-limited 200 pips range ahead of the announcement.
The Bank of England (BoE) will announce its decision on monetary policy on Thursday after completing the last meeting of 2024. The BoE is widely anticipated to keep the benchmark rate on hold at 4.75%, resulting in a measly 50 basis points (bps) trim throughout 2024. At the time being, financial markets are pricing in another 63 bps in cuts for 2025, down from 80 bps a week before.
BoE's cautious approach to rate cuts persists
The odds for additional interest rate cuts ahead decreased following the release of the United Kingdom's (UK) monthly employment report, which showed an unexpected uptick in wages. Average Earnings Excluding Bonus, a key measure of wage growth, rose by 5.2% in the three months to October, surpassing estimates of 5% and higher than the previous 4.9%.
The figures struck a chord, although inflation figures released afterwards were in line with expectations.
On Wednesday, the UK reported that the November Consumer Price Index (CPI) rose 2.6% on a yearly basis in November, higher than the 2.3% posted in October, yet matching the market’s expectations. Core CPI annual inflation, in the meantime, rose to 3.5% in November, above the previous 3.3%, while below the market consensus of 3.6%.
It is worth noting that yearly inflation posted an encouraging 1.7% in September, with the subsequent increase reinforcing BoE’s cautious stance amid concerns about persistent inflationary pressures.
Ahead of the event, Governor Andrew Bailey said in an interview that the BoE could be on track for four interest rate cuts over the next year if inflation continues its downward path. Yet before such comment, he also said the BoE would need to take a “gradual” approach to lowering rates. The latest employment and inflation-related figures reinforce the idea of a cautious approach and, hence, the expected on-hold decision.
Beyond the decision itself, market players will also pay attention to how voting splits. The nine Monetary Policy Committee (MPC) members are responsible for making decisions about the bank rate. They can vote to cut, hike or keep interest rates on hold. The more votes in one direction or the other, the more the market will see it as a hint of future action. For this December meeting, market participants anticipate eight MPC members will vote to keep rates on hold and one member to vote in favor of a cut.
Finally, the BoE will release alongside the Monetary Policy Report a document explaining what backed their decision and, more relevantly, officials' economic outlook, the latter seen as a hint towards future decisions.
Federal Reserve’s hawkish cut
The Federal Reserve (Fed) deserves a separate chapter ahead of the BoE’s decision, as the United States (US) central bank announced its decision on monetary policy late on Wednesday, boosting demand for the US Dollar (USD) across the FX board.
The Fed cut the benchmark interest rate by 25 basis points (bps) as widely anticipated. Yet, the Summary of Economic Projections (SEP) or dot plot triggered a risk-averse reaction, as policymakers confirmed an upcoming pause in rate cuts through 2025. Updated projections and Chairman Jerome Powell’s press conference showed officials opted for a more cautious approach amid sticky inflation and the return of former President Donald Trump to the White House.
The announcement pushed the USD sharply up while stock markets collapsed. The GBP/USD pair posted a fresh December low of 1.2560, bouncing just modestly afterwards.
How will the BoE interest rate decision impact GBP/USD?
As said, the BoE is expected to keep the benchmark interest rate on hold. The decision is largely priced in, which means the British Pound (GBP) will hardly react to the announcement unless there is a huge surprise. The news market mover will be the MPC voting spread. The more members vote for a cut, the more dovish will be seen the decision and could result in a GBP slide. The opposite scenario is also valid. Finally, speculative interest will assess the Monetary Policy Report and Governor Bailey’s words to determine how hawkish or dovish the BoE is today.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “In the case of a dovish outcome, GBP/USD could turn bearish. Still, if the announcement aligns with recent Bailey’s comments on four rate cuts coming in 2025, the decline could be shallow, given that it would lack the surprise factor that usually results in wider price reactions. On the contrary, a hawkish surprise or hints of fewer rate cuts next year could result in GBP/USD turning bullish.”
Bednarik adds: “The GBP/USD pair trades at levels last seen in November, in the Fed’s aftermath, and looks poised to extend its decline, particularly if the fresh monthly low at 1.2560 gives up. The next relevant support comes at the 1.2486 November low, while a break below the latter exposes the 1.2420 price zone. A critical resistance level is the former December low at 1.2698, en route to the top of the recent range at 1.2810.”
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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