Bank of England to Maintain 4.75% Bank Rate Amidst Christmas Pause
LONDON – On Thursday, December 19, the Bank of England (BoE) is anticipated to uphold the Bank Rate at 4.75%, aligning with market expectations and consensus. The decision comes as a reflection of data that has largely met the BoE’s projections, reinforcing the notion of a gradual approach to monetary policy easing.
Vote Split and Projections
The vote split is forecasted to stand at 8-1, with the majority advocating for maintaining the status quo, while Dhingra dissents in favor of a 25 basis point cut. It is noteworthy that this meeting will not feature updated projections or a post-statement press conference.
Data Overview and Monetary Policy Outlook
In the wake of the previous monetary policy decision in November, data has closely mirrored the MPC’s forecasts from that month. Although headline inflation has shown slight resilience, service inflation has adhered to expectations. Concurrently, private sector wage growth has matched projections, registering at 4.8% year-on-year in the three months leading up to September. Despite signs of labor market slackening, the disinflationary trajectory remains intact. However, upside risks loom large in the latest PMI surveys, accentuated by an expansionary fiscal stance. Q3 growth figures fell marginally short of expectations, heightening downside risks for the Q4 outlook.
Forecasts and FX Implications
Looking ahead to 2025, experts envision a series of rate cuts at each meeting commencing in February, culminating in a slowdown of easing by the second half of the year to quarterly adjustments. This trajectory is set to push the Bank Rate to 3.25% by the end of 2025, a lower figure than current market estimates. Despite a dovish slant in the market sentiment, some EUR/GBP upside is anticipated post-announcement. The broader trend points towards a decline in EUR/GBP over the next few quarters, propelled by the BoE lagging behind its counterparts in the easing cycle, robust UK economic performance, and narrow credit spreads.
Conclusion
As stakeholders await the BoE’s decision, the monetary policy outlook remains contingent on forthcoming data releases, hinting at a nuanced approach to navigating evolving economic landscapes. With expectations of a pause in the current meeting, the BoE’s stance underscores the delicate balance between inflationary pressures and growth prospects.
Remember, when navigating the intricacies of monetary policy decisions, it’s essential to stay informed and adapt to the evolving economic climate for a clearer perspective on policy implications. Stay tuned for updates on the BoE’s decision and its ramifications on the financial landscape.
