BoE Interest Rate Decisions December 2024
BY TIO Staff
|ธันวาคม 17, 2567With the Bank of England’s (BoE) next policy announcement fast approaching, analysts widely anticipate that the base rate will remain unchanged at 4.75%. Factors such as rising inflation, economic performance, and the fiscal strategies of the newly elected Labour government are shaping this outlook.
The Bank’s upcoming decision comes at a time when inflation increased to 2.3% in October. This increase has diminished the appetite and likelihood of a rate cut. Additionally, the government’s recent corporate tax hikes, introduced in October’s budget, have contributed to a more cautious stance from policymakers.
Keep reading to learn more.
UK Economic Performance
The recent jump in inflation to 2.3% is a key driver behind expectations of an unchanged interest rate. Elevated inflation often leads central banks to tread carefully, as reducing rates too soon could exacerbate price increases. The Bank of England is particularly mindful of persistent wage pressures in the UK labor market too, which remain higher compared to regions like the US and Europe.
While the US Federal Reserve and the European Central Bank (ECB) have adopted a more aggressive approach by cutting rates recently, the Bank of England’s focus on domestic inflation has resulted in a more restrained strategy. In November and December 2024, the Fed and ECB reduced their rates by 0.25 percentage points each, signaling a divergent path from the BoE.
The Bank is also closely monitoring economic growth, with GDP figures showing a slight unexpected contraction in October. While this could tempt some policymakers to advocate for a rate reduction to stimulate activity, most economists believe the dip is temporary rather than indicative of a longer-term trend. As a result, it seems unlikely that borrowers will see a festive season rate cut.
The government’s fiscal policies, including recent tax hikes, have further complicated the Bank’s outlook. These measures, while aimed at addressing public finances, have introduced uncertainty into the inflation forecast. Market expectations currently point to limited rate cuts from the Bank of England through 2025, with an estimated 0.75 percentage point reduction by year-end. In contrast, the ECB is projected to lower its benchmark rate by a more substantial 1.5 percentage points during the same period.
What this could mean for the GBP
According to data from Trading Central on our economic calendar, for historical events;
- The price change on the GBPUSD for the past 8 events ended bullish 63% of the time, over a 1 hour period after the announcement.
- The average price range for the GBPUSD over a 1 hour period after the announcement was about 40 pips.
Conclusion
As December 19th approaches, the Bank of England appears set to keep its official bank rate unchanged at 4.75%. With inflation still a concern and fiscal policies creating additional headwinds, the Bank’s cautious stance aims to balance economic stability with inflation control. Traders and policymakers alike will be closely watching this decision, as the Bank’s trajectory has significant implications for the UK economy and beyond.
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