Important takeaways
- The Bank of England kept its interest rate at 4.75% as UK inflation rose to an eight-month high.
- Higher transport and housing costs are significant contributors to the recent rise in UK inflation.
The Bank of England (BoE) has decided to keep interest rates at 4.75% amid accelerating UK inflation, according to minutes of the Monetary Policy Committee meeting was released on Thursday. The decision to keep prices unchanged was made by a 6-3 vote, with three members advocating a 25-point cut.
UK inflation rose in November 2024, according to data was released today by the Office for National Statistics. The consumer price index (CPI) rose to 2.6% in November, up from 2.3% in October, marking the second consecutive monthly increase above the central bank’s 2% target.
The consumer price index including owner occupiers’ housing costs (CPIH), the UK’s preferred measure of inflation, rose to 3.5% in November from 3.2% in October.
Prices of goods and services in the UK are rising faster than they were in October. This increase is driven by factors such as higher transport costs and rising housing costs. While overall inflation is increasing, the rate of increase has slowed compared to previous months.
While the latest inflation figures do not exceed market expectations, and some inflationary pressures may indeed be easing, persistent service sector inflation remains a key concern for the central bank.
The services sector, which accounts for around 80% of the UK economy, has shown persistently high rates of inflation, prompting the central bank to maintain a cautious stance.
Economists had already ruled out any possibility of a rate cut from current 4.75% as soon as UK inflation data was out, as the BoE aims to maintain its 2% inflation target, Morningstar reported.
The BoE’s decision comes after the US Fed reduced interest rates with 25 points, which corresponds to the market’s expectations. Bank of Japan on Thursday as well is maintained its current interest rate.
While the US central bank’s decision was in line with forecasts, the Fed’s message was surprisingly more hawkish.
Fed Chairman Jerome Powell signaled a slower pace of future cuts, given that inflation remains above its 2 percent target. The number of interest rate cuts in 2025 can be limited to two, instead of four, with careful monitoring of the economy.
Global markets took a hit after the Fed’s hawkish signals.
US stocks experienced their biggest daily decline in months, with major indexes posting significant losses. European stocks also fell, reflecting a broader sell-off in response to the Fed’s stance.
Risk-sensitive assets, including cryptoassets like Bitcoin, faced downward pressure as market sentiment shifted toward caution. Bitcoin’s price fell by about 6%, trades under $100,000 mark on Wednesday night before recovering over $102,000 at press time, per TradingView.
