Bank of England: Policy interest rate may remain unchanged in December
2024-11-11
■ At the Monetary Policy Committee (MPC) meeting on the 7th, the Bank of England lowered the policy rate to 4.75%, in line with market expectations, the first rate cut after two consecutive meetings
■ As deflation continues to progress, moderate and minor rate cuts may continue in the future
On the 7th, the Bank of England (BOE) lowered the policy rate from 5.00% to 4.75% at the Monetary Policy Committee (MPC). The rate cut was in line with market expectations and was the first since September. The rate cut decision was passed by an 8-1 vote, with Commissioner Mann advocating to keep the interest rate unchanged. The statement and monetary policy summary pointed out that the decision reflects the continued progress of deflation. "To stabilize the inflation rate back to the target level of 2% in the medium term, monetary policy needs to remain tight for a sufficient period," and reiterated that "the committee will continue to pay close attention to the risks of continued inflation and decide on the appropriate degree of monetary policy at each meeting." At the same time, it pointed out that "in the coming years, to ensure that inflation remains stable at a low level, it is necessary to avoid excessive or premature interest rate cuts."
Inflation is expected to rise to about 2.5% this year and to about 2.7% by the end of 2025, but it will fall to 1.8% by the end of 2027, below the Bank of England's target. The impact of the government's autumn budget on inflation will depend on the degree and speed of transmission of cost increases in prices, profit margins, wages, and employment, and it is expected to be affected by the new Starmer government's spending increases and tax increases.
The consumer price index (CPI) in September increased by 1.7% year-on-year, lower than the Bank of England's target, but the core CPI increased by 3.2% year-on-year, and the service price increased by 4.9% year-on-year, which is still high. The possibility of a continuous reduction in the policy interest rate is currently low. In the short term, financial markets expect the probability of a rate cut at the MPC meeting in December to be about 20%, while it will be around 70% at the conference in February 2025. If the UK employment data for July-September released on the 12th of next week shows a slowdown in wage growth and a decrease in recruitment, the signs of a slowdown in the labor market will be more obvious. New price and employment-related data released before the next MPC meeting on December 19 will also be necessary for the Bank of England to decide whether to cut interest rates further.
■ As deflation continues to progress, moderate and minor rate cuts may continue in the future
On the 7th, the Bank of England (BOE) lowered the policy rate from 5.00% to 4.75% at the Monetary Policy Committee (MPC). The rate cut was in line with market expectations and was the first since September. The rate cut decision was passed by an 8-1 vote, with Commissioner Mann advocating to keep the interest rate unchanged. The statement and monetary policy summary pointed out that the decision reflects the continued progress of deflation. "To stabilize the inflation rate back to the target level of 2% in the medium term, monetary policy needs to remain tight for a sufficient period," and reiterated that "the committee will continue to pay close attention to the risks of continued inflation and decide on the appropriate degree of monetary policy at each meeting." At the same time, it pointed out that "in the coming years, to ensure that inflation remains stable at a low level, it is necessary to avoid excessive or premature interest rate cuts."
Inflation is expected to rise to about 2.5% this year and to about 2.7% by the end of 2025, but it will fall to 1.8% by the end of 2027, below the Bank of England's target. The impact of the government's autumn budget on inflation will depend on the degree and speed of transmission of cost increases in prices, profit margins, wages, and employment, and it is expected to be affected by the new Starmer government's spending increases and tax increases.
The consumer price index (CPI) in September increased by 1.7% year-on-year, lower than the Bank of England's target, but the core CPI increased by 3.2% year-on-year, and the service price increased by 4.9% year-on-year, which is still high. The possibility of a continuous reduction in the policy interest rate is currently low. In the short term, financial markets expect the probability of a rate cut at the MPC meeting in December to be about 20%, while it will be around 70% at the conference in February 2025. If the UK employment data for July-September released on the 12th of next week shows a slowdown in wage growth and a decrease in recruitment, the signs of a slowdown in the labor market will be more obvious. New price and employment-related data released before the next MPC meeting on December 19 will also be necessary for the Bank of England to decide whether to cut interest rates further.