The Bank of England (BOE) has decided to keep interest rates unchanged at 4.75% during its meeting on December 19, 2024. This decision comes amid rising inflation, which has reached 2.6%, exceeding the BOE's target of 2%. The BOE's cautious stance reflects heightened uncertainty in the economic landscape, with three committee members advocating for a quarter-point cut, yet the majority opted for a more measured approach [c6e3e849].
Governor Andrew Bailey emphasized the importance of a gradual approach to any future rate cuts, highlighting the need to navigate the complexities of the current economic environment. The UK economy has faced contraction for two consecutive months, raising concerns about growth prospects [c6e3e849]. This cautious approach contrasts with the recent rate cuts from the U.S. Federal Reserve, indicating a divergence in monetary policy strategies between the two economies [c6e3e849].
The BOE's decision follows a £26 billion tax increase introduced by Chancellor Rachel Reeves, which critics argue has exacerbated inflation pressures and dampened economic growth. The new Labour government's budget has come under scrutiny for its potential impact on the economy, further complicating the BOE's monetary policy decisions [c6e3e849].
Additionally, uncertainty looms over potential tariffs from the incoming U.S. administration under Donald Trump, which could have far-reaching implications for the UK economy. As the BOE navigates these challenges, its policies will be closely monitored by analysts and market participants alike, as they seek to understand the future trajectory of the UK economy [c6e3e849].