Bank Of England To Keep Rates Steady As Price Pressures Linger

• The Bank of England is expected to hold interest rates at 4.75% on Thursday, despite signs of a slowing economy, as persistent inflation pressures limit it to a "gradual" approach towards cutting borrowing costs. All 71 economists polled by Reuters said rates would stay unchanged for now. Most expect a quarter-point cut only on Feb. 6 after its next meeting, followed by three more cuts by the end of 2025.
• However, financial markets are much less certain about the extent of rate cuts next year, following data on Tuesday that showed an unexpected acceleration of wage growth. Investors late on Wednesday priced in just a 50% chance of a rate cut in February and only two cuts in 2025 as a whole.
• By contrast, the European Central Bank has cut rates by one percentage point in 2024 and is expected by markets to lower them by another percentage point in 2025 as the euro zone economy is hit by political turmoil and the risk of a U.S. trade war.
• Importantly, Governor Andrew Bailey this month reaffirmed the BoE's message that "a gradual approach to removing policy restraint remains appropriate". The BoE's November forecasts - which showed inflation staying just above its 2% target until 2027 - were based on market expectations of four rate cuts next year.

(Source: Reuters)