19 December 2024
If you are covering the Bank of England's latest interest rate decision, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“A hold on interest rates had long been priced in by the market, so the Bank of England’s confirmation of this decision comes as no real surprise. Nonetheless, it bucks the trend set by its US and European counterparts, opting to hold while the others forged ahead with further cuts.
"The UK economy appears to be slipping into stall speed, which could have been enough to prompt a rate cut if other issues were less persistent. However, the Bank had repeatedly warned that inflation might rise towards the end of 2024 before falling more sustainably next year, and yesterday’s CPI figures provided further evidence of this, rising to 2.6% in the 12 months to November.
“The recent focus of the monetary policy committee has been on services inflation, which at 5% remains a real challenge. Their concerns have centred on persistent wage inflation combined with weak productivity, but higher National Insurance costs for employers could be expected to dampen wage growth somewhat. However, BoE survey responses suggest many firms may also respond with cuts to headcounts and higher prices, which could be a more inflationary result than simply suppressing wages.
“The labour market has been cooling, albeit only gradually. Payrolled employee numbers changed little in 2024, unemployment has risen only marginally, and wage growth is still rising. As a result, expectations for interest rate cuts are low for next year, but there is scope for more should further signs of easing materialise.
“Markets are currently pricing in around two 0.25% interest rate cuts in 2025, which is a considerably more cautious outlook than that of the European Central Bank and the Federal Reserve. Policymakers in the UK will face a tricky balancing act of maintaining price stability without leaving monetary policy too tight, but we are likely to see the pressure piled on for the Bank to act sooner rather than later.”
