Bank of England leaves rates unchanged as inflation climbs to eight-month high

The Bank of England (BoE) has decided to maintain interest rates at 4.75% amid reaccelerating inflation in the UK, according to the minutes of the Monetary Policy Committee’s meeting released on Thursday. The decision to keep rates unchanged was made by a 6-3 vote, with three members advocating a 0.25% point reduction.

UK inflation edged higher in November 2024, according to data released today by the Office for National Statistics. The Consumer Price Index (CPI) rose to 2.6% in November, up from 2.3% in October, marking the second consecutive monthly increase above the central bank’s 2% target.

The Consumer Price Index including owner occupiers’ housing costs (CPIH), the UK’s preferred measure of inflation, climbed to 3.5% in November from 3.2% in October.

Prices for goods and services in the UK are rising faster than they were in October. This increase is driven by factors like higher transportation costs and rising housing costs. While the overall inflation rate is increasing, the rate of increase has slowed down compared to previous months.

Even though recent inflation figures are not beyond market expectations, and some inflationary pressures may indeed be easing, persistent inflation in the service sector remains a key concern for the central bank.

The services sector, which accounts for around 80% of the UK economy, has shown stubbornly high inflation rates, prompting the central bank to maintain a cautious approach.

Economists had already ruled out any possibility of a rate cut from the current 4.75% as soon as UK inflation data was out, as the BoE aims to maintain its target inflation rate of 2%, Morningstar reported.

The BoE’s decision comes after the US Fed lowered interest rates by 25 basis points, matching market expectations. The Bank of Japan on Thursday also maintained its current interest rate.

While the US central bank’s decision was consistent with forecasts, the Fed’s message came surprisingly more hawkish.

Fed Chair Jerome Powell signaled a slower pace of future cuts, given that inflation remains above its 2% target. The number of interest rate cuts in 2025 may be limited to two, instead of four, with a close eye on economic conditions.

Global markets took a hit following the Fed’s hawkish signals.

US stocks experienced their largest daily decline in months, with major indexes posting substantial losses. European stocks also tumbled, reflecting a broader sell-off in response to the Fed’s stance.

Risk-sensitive assets, including crypto assets like Bitcoin, faced downward pressure as market sentiment shifted towards caution. Bitcoin’s price declined approximately 6%, trading below the $100,000 mark on Wednesday evening before recovering above $102,000 at press time, per TradingView.

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