Instant view: BoE keeps rates on hold but policymakers more divided

8:24 am Thursday, December 19th, 2024

LONDON (Reuters) – The Bank of England kept its main interest rate unchanged at 4.75% on Thursday but policymakers became more divided about whether rate cuts were needed to tackle a slowing economy.

Three of the BoE’s nine-person Monetary Policy Committee voted for a quarter-point rate cut instead, much higher than the one member economists polled by Reuters had expected.

But BoE Governor Andrew Bailey said the central bank needed to stick to its existing “gradual approach” to cutting rates.

MARKET REACTION:

STOCKS: London’s FTSE-100 stock index cut its losses following the decision and was down around 1.1% by 1215 GMT. The domestically focussed FTSE-250 moved similarly.

FOREX: Sterling dipped against the dollar and was last up 0.2% at $1.26080, from $1.2628 before the decision.

BONDS AND MONEY MARKETS: Rates-sensitive two-year gilt yields were down less than a basis point at 4.46% while traders continued to expect two more BoE rate cuts next year.

COMMENTS:

CHRIS SCICLUNA, HEAD OF ECONOMIC RESEARCH, DAIWA CAPITAL MARKETS, LONDON:

“There is a very decent case for a rate cut and the market pricing has become more hawkish. It looks like markets were too influenced by events in the U.S. economy and you can see that by what’s happened in U.S. and UK bond yields in the last three weeks.”

“The UK economy is behaving far more like the euro zone economy than the U.S. one. The UK economy is flatlining and that suggests the monetary policy stance is too tight.”

“There was a case for a rate cut today and there is a case for several cuts next year.”

“I expect a cut in Feb when the BoE updates its projections.”

NEIL BIRRELL, CHIEF INVESTMENT OFFICER, PREMIER MITON INVESTORS, LONDON:

“As expected, the Bank of England left the base rate unchanged. Clearly the spectre of inflation is its major concern rather than a stagnating economy.”

“Ongoing poor news out of the all-important consumer sector is a concern, but that has been parked until the new year, when we will have heard from the major retailers on the Christmas period. It’s difficult to get enthused about the outlook for the economy at the moment and the path for interest rate cuts isn’t helping.”

(Reporting by the London Markets team, compiled by Yoruk Bahceli; editing by Dhara Ranasinghe)