Bank Of England Keeps Rates Unchanged Even As Three Policymakers Back Cut

The Bank of England signaled it will keep easing gradually in 2025 as a growing minority of officials set aside evidence of lingering inflation to back an immediate cut in borrowing costs.

The Monetary Policy Committee voted 6-3 in favor of keeping its benchmark interest rate unchanged at 4.75%, according to minutes from this month’s meeting released on Thursday.

Deputy Governor Dave Ramsden, and Alan Taylor, the BOE’s newest rate-setter, switched sides to join Swati Dhingra in advocating a cut. The scale of support for a quarter-point reduction was not anticipated by economists.

“We think a gradual approach to future interest-rate cuts remains right,” Governor Andrew Bailey said in a statement. “But with heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year.”

With Donald Trump poised to re-enter the White House in January, the UK central bank specified geopolitics and trade among the risks it sees, along with the impact of the Labour government’s recent budget. A stagflationary picture emerged in the description of officials, with economic growth now expected to be flat in the fourth quarter.

The decision places the BOE in a more dovish position in comparison to the US Federal Reserve, which renewed its focus on inflation in its own announcement on Wednesday.

While UK officials stuck with their guidance for “gradual” rate cuts and a meeting-by-meeting approach, they did note a growing risk of sticky prices after this week’s shock jump in wage growth and rise in inflation to an eight-month high.

That had prompted investors to pare back bets on easing next year, including slashing the odds of a move in February to just 50%.

Even so, the shifting vote suggest that such data are yet to deter the MPC from continuing with a cautious once-a-quarter pace to easing, removing constriction on the economy while guarding against inflation threats brewing at home and abroad.

After 14 back-to-back hikes, UK officials have now lowered borrowing costs by just half a percentage point, and traders only expect a further two quarter-point moves in 2025. Prior to this week’s data, Bailey had hinted that a gradual approach implied four cuts next year.

The divergence in policy with the more dovish European Central Bank, which is firmly set on a course for steady rate cuts, prompted investors last week to push the pound to its strongest closing level against the euro in more than eight years.

Regarding lingering inflation threats, the BOE minutes noted risks on both sides, weighing weaker growth signals up against stubborn domestic price pressures.

Following recent disappointing activity data, the central bank’s officials downgraded their forecast for the fourth quarter, expecting zero growth compared to their November projection for a 0.3% rise in gross domestic product.