A pedestrian crosses the streets in front of The Bank of England illuminated by a ray of sunlight, in central London, on February 12, 2024.
This was CNBC's live blog monitoring the Bank of England's monetary policy decision for November 2024.
LONDON — The Bank of England cut interest rates by 25 basis points Thursday while raising its inflation forecast as Labour's bumper budget announcement muddies the outlook for future policy easing.
The BOE's Monetary Policy Committee voted 8-1 in favour of the decision to bring the bank's key rate to 4.75%. It marks the central bank's second such trim this year, after it began its easing cycle in August.
Policymakers pointed to a continued easing of inflation as a factor influencing their decision, but noted that the government's fiscal plan had led to a raise in their forecasts for growth and inflation.
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The bank now sees inflation rising by 0.5 percentage points, more than previously forecast, to hit a high of around 2.75% next year before falling back to its 2% target. Growth, meanwhile, is seen increasing by around 0.75% in a year's time.
BOE Governor Andrew Bailey said the bank would, as such, need to retain a "gradual approach" to policy easing.
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"Monetary policy will need to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target over the medium term have dissipated further," he said, speaking at a press conference shortly after the rate decision.
Money markets had been pricing in a 97% chance of the quarter-point trim at the November meeting, even as analysts warned that subsequent cuts could be delayed as a result of the government's tax-and-spend budget.
"Even though interest rates have further to fall, the upward pressure on inflation from the budget and growing global risks, including possible new U.S. tariffs, could mean that policy is loosened more modestly than many anticipated," Suren Thiru, economics director at ICAEW, said in a note following the announcement.
Policymakers signaled a "gradual approach" to cuts after holding rates steady at their September meeting. However, economists had upped their expectations of a faster pace of easing following a sharp fall in inflation to 1.7% and a drop off in wage growth prior to the budget.
Those expectations were later dampened after U.K. Finance Minister Rachel Reeves announced £40 billion ($51.41 billion) in tax hikes and a change to the U.K.'s debt rules, which the Office for Budget Responsibility (OBR) warned could push up near-term growth and inflation.
BOE governor says Labour's 'credible' budget hasn't complicated economic outlook
The BOE's Andrew Bailey on Thursday said Labour's budget provided a "credible" path to growth and it had not complicated the bank's central mission of returning inflation to target.
Speaking to CNBC, Bailey said he "strongly" agreed with Finance Minister Rachel Reeves' efforts to raise the U.K.'s growth rate, adding that it was critical to improving the country's economic outlook.
"One of the most important things is raising the potential growth rate," he told Steve Sedgwick.
Successive U.K. governments have attempted to boost the country's growth rate through a range of tax hikes and cuts.
Most famously, former Prime Minister Liz Truss and her then-Finance Minister Kwasi Kwarteng attempted to do so through a bumper package of unfunded tax cuts, resulting in a bond market meltdown and emergency intervention from the Bank of England.
"There are many ways to raise potential growth. They have to be credible," Bailey said, without naming any particular administration.
The central bank governor noted, however, that both Reeves and her predecessor, Conservative Finance Minister Jeremy Hunt, had outlined solid visions to raise U.K. growth.
"We have, by recent historical standards, low potential growth. If we raise the potential growth rate, the fiscal sustainability issue gets easier," he said.
"I strongly agree with the chancellor – and actually the previous chancellor as well – that raising the U.K.'s potential growth rate is a way to ease this situation and tackle these very big structural headwinds," he added, referencing rising global debt levels.
The comments come after the BOE raised its growth and inflation outlook for the U.K. and signaled a "gradual" path ahead following the government's budget announcement.
— Karen Gilchrist
Services inflation still too high for 'swift and steep' cuts, BlackRock says
Stickiness in the U.K.'s services inflation remains a key barrier to faster and deeper rate cuts, according to BlackRock.
U.K. inflation fell to 1.7% in September, down from 2.2% the previous month, but price rises in the country's dominant services sector have remained harder to budge.
"Services inflation, at 4.9% annualised, is too high for swift and steep cuts in our view, especially given the sizeable fiscal loosening announced by the UK government last week," Vivek Paul, U.K. chief investment strategist at BlackRock Investment Institute, said in a note.
— Karen Gilchrist
November rate cut seen as welcome news for mortgages
Thursday's interest rate cut was seen as positive news for the housing market, with mortgage lenders expected to nudge down rates even as uncertainty from Labour's budget remains.
"This is welcome news for house hunters who will now feel more motivated to resume their search. We predict the boost in buyer confidence to result in the property market being busier than expected for this time of year," Matt Thompson, head of sales at London-based estate agents Chestertons, said in a statement.
Richard Donnell, executive director at property portal Zoopla said he expects that uptick in activity to extend into 2025.
"The decline in the base rate is already being factored into lower mortgage rates which have reached a two year low over the autumn," Donnell said.
U.K. house prices hit a record high in October, but the 0.2% month-on-month increase was the smallest in three months as higher interest rates continued to weigh on transactions, fresh data from Halifax showed Thursday.
— Karen Gilchrist
Dovish split but caution remains, analysts say
Monetary Policy Committee (MPC) members' 8-1 majority vote suggests a more dovish split on rate cuts than in the past. But policymakers are likely to retain a cautious approach to monetary policy moving forward, according to analysts.
Capital Economics on Thursday described Thursday's decision as a "slam dunk" but noted the bank's repeated reference to a "gradual approach" ahead.
"This is quite a hawkish set of communications from the Bank of England," Matthew Ryan, head of market strategy at global financial services firm Ebury, said. "The statement seems to indicate that UK rates will perhaps come down slightly more gradually than had been previously believed."
MPC members voted just 5-4 in favor of the central bank's August rate cut — its first in four years.
"While the vote split suggests that the decision to cut rates was emphatic, the rather cautious meeting minutes suggest that a December rate cut is unlikely, particularly given greater global uncertainty and the bank forecasting higher inflation," Suren Thiru, economics director at ICAEW, added in a note.
— Karen Gilchrist
Bailey points to global 'uncertainty' without directly mentioning Trump
Bank of England Governor Andrew Bailey described an environment of "greater uncertainty" while fielding questions on the economic impact of President-elect Donald Trump's election victory.
Bailey said the BOE was set to work with "all U.S. administrations" but gave little away on the bank's predictions for Trump's tariff agenda.
"Let's wait and see where things get to. I'm not going to prejudge what might happen, what might not happen," he said, while pointing to risks around global fragmentation.
"Frankly, there are a lot of risks attached to the fragmentation of the world economy," he said.
Bailey also pointed to increased domestic uncertainty as a result of the U.K. budget, saying the bank would be closely monitoring how the measures pass through to the economy and the labour market in particular.
— Karen Gilchrist
Bailey reiterates "gradual approach" to policy easing
Governor Andrew Bailey reiterated the Bank of England's "gradual approach" to policy easing Thursday, saying interest rates would remain higher for "sufficiently long" while inflation risks remain.
"Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate," Bailey said during a press conference.
"Monetary policy will need to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target over the medium term have dissipated further."
He added that policymakers would decide future policy decisions on a meeting-by-meeting basis.
— Karen Gilchrist
Labour budget seen pushing up inflation slightly, Bank of England says
Labour's budget is seen pushing up inflation by just less than 0.5 percentage points at its peak versus previous projections, the BOE said Thursday.
The fiscal plans are also expected to boost gross domestic product by 0.75% in a year's time, the bank added.
The revisions reflect "both the indirect effects of the smaller margin of excess supply and direct impacts from the Budget measures," policymakers said.
— Karen Gilchrist
Bank of England set for 'fairly shallow easing cycle,' analyst says
As the Bank of England pressed ahead with a quarter-point interest rate cut, some analysts turned to the question of how far Britain's monetary policy can be eased.
"A cooling labour market should help maintain downward pressure on services inflation in the coming months," said Hussain Mehdi, director for investment strategy for HSBC Asset Management, in emailed comments.
"But the latest U.K. budget is likely to add to inflationary pressures over the longer-term. We are in an era of 'forever deficits' reflecting political priorities to boost growth and productivity."
The current "fiscal activism" marks a steep policy shift from the 2010s "when austerity was counterbalanced by monetary policy on steroids," he added, forecasting a "fairly shallow easing cycle" for the Bank of England and upcoming pressure on bond yields — which jumped in the minutes after the British central bank's decision.
A higher-for-longer interest rate environment could erode investors' ability to rely on government bonds to hedge their portfolios, according to Mehdi.
— Ruxandra Iordache
BOE needs to see services inflation fall further, Governor Bailey says
Bank of England Governor Andrew Bailey said policymakers still need to see a sustained reduction in services inflation to feel confident in reducing rates further.
"We still need to see services price inflation come down more broadly" to keep overall inflation at the bank's 2% target over time, Bailey said speaking at a press conference shortly after the rate decision.
— Karen Gilchrist
British bond yields shrink back
U.K. borrowing costs retreated after the Bank of England implemented its second interest rate trim this year. The yield on Britain's 10-year and 2-year bonds — known as gilts — lost nearly 2 and 4 basis points at 12:15 p.m. London time, respectively.
A bond's yield typically moves inversely to its price and in line with interest rates.
— Ruxandra Iordache
Finance Minister Reeves welcomes rate cut
U.K. Finance Minister Rachel Reeves welcomed the BOE's rate cut Thursday but acknowledged that the economic pressure on families remains strong.
"The interest rate cut will be welcome news for millions of families, but I am under no illusion about the scale of the challenge facing households after the Conservatives' mini-budget. That's why we are taking the long term decisions to fix the foundations and deliver change," Reeves said in a post on social media.
The chancellor was referring to former opposition Prime Minister Liz Truss' infamous October 2022 tax-cutting mini-budget, which resulted in major swings in bond market and emergency intervention from the Bank of England.
Reeves' comments come amid concern that her own tax-rising budget could boost growth and inflation.
— Karen Gilchrist
Sterling picks up after rate cut
Sterling ticked higher after the Bank of England announced its second interest rate cut this year, up 0.39% against the U.S. dollar at 12:11 p.m. in London, while the euro lost 0.07% against the British pound.
Interest rate trims typically reduce support for a country's currency. Foreign exchange markets this week have been dominated by the rippling effect of the U.S. election.
Currency markets may also be taking guidance from the BOE's cautious tone on the trajectory of potential future rate cuts:
"We need to ensure inflation stays low. So we will not cut rates too quickly or too much," it said in its November report.
— Ruxandra Iordache
Bank of England cuts rates by 25 basis points
The Bank of England on Thursday cut interest rates by 25 basis points, marking its second trim this year.
The widely anticipated reduction brings the central bank's key rate to 4.75% after it began its easing cycle in August.
— Karen Gilchrist
Trump's election could speed up 2025 rate cuts, UBS says
President-elect Donald Trump's victory in the U.S. election could speed up the pace of Bank of England rate cuts in the second-half of 2025, UBS said Thursday.
While Trump's proposed tariffs have broadly been seen as inflationary, the resultant "loss of consumer and corporate confidence" could potentially have a disinflationary effect, analysts at the bank said.
Those pressures are likely to primarily impact Europe — for whom the U.S. is its biggest trading partner — ultimately speeding up the pace of rate cuts from the European Central Bank. UBS now sees the ECB taking interest rates back to the 2% neutral level as soon as June 2025.
However, they could filter through to the Bank of England's monetary policy from the middle of the year, the analysts added.
"For the Bank of England, we look for a more modest cutting pace as growth is more robust and the UK government has announced large fiscal easing. However, risks to a faster pace of cuts in 2H25 are rising," the note said.
Budget seen slowing pace of rate cuts
The Bank of England is largely seen pressing pause on rate cuts in December, according to analysts, as Labour's tax-and-spend budget boosts forecasts for growth and inflation.
J.P. Morgan's U.K. economist Allan Monks said in a note on Monday that BOE policymakers are likely to stick with their previously signaled "gradual approach" to rate cuts and keep the base rate above 4% through 2025.
"With the budget set to fuel inflation, we expect the BoE to continue to stress a gradual approach to monetary policy easing, setting the stage for a December pause," Danske Bank agreed in a note Thursday.
In a note last week, Goldman Sachs said it now sees a third trim coming in February, with the central bank "cutting sequentially" thereafter to bring its key rate to 3% by November.
Citi on Tuesday echoed those calls for a February cut, but noted that "greater fiscal activism" from the government gave reason for caution. It forecast consecutive cuts from May, without specifying a number of reductions.
— Karen Gilchrist
Sweden's Riksbank cuts rates by bumper 50 basis points
Sweden's Riksbank cut interest rates by 50 basis points on Thursday and signaled further trims to come as global central banks are seen syncing their monetary policy easing.
The bumper reduction — its first such move in a decade — brings the bank's key rate to 2.75% and follows a previous 25 basis points cut in September.
"If the outlook for inflation and economic activity remains unchanged, the policy rate may be cut again at the next monetary policy meeting in December and during the first half of 2025," the bank said in a statement.
— Karen Gilchrist
UK bond yields slip ahead of rate decision
U.K. borrowing costs ticked slightly lower Thursday ahead of the Bank of England's rate decision, softening a recent rally that has pushed gilt yields to their highest level in more than a year.
The 10-year gilt yield slipped two basis points to trade at 4.536% by 9:30 a.m. London time, while the 2-year gilt yield was three basis points lower at 4.481%. Yields move inversely to prices.
Bond yields spiked last week as investors pondered the extent of excess borrowing and increased taxes announced in the Labour government's Oct. 30 budget. That rally has since continued into this week, with 10-year yields hovering near their highest level since October 2023 following the conclusion of the U.S. presidential election on Wednesday.
— Karen Gilchrist
Sterling ticks up ahead of interest rate cut
Sterling picked up on Thursday despite broad expectations that the Bank of England will trim interest rates.
The British pound was up 0.38% against the U.S. dollar and 0.25% higher against the euro at 8:43 a.m. London time.
Interest cuts typically pressure down currency. Investor focus will now shift toward whether the Bank of England will continue on the path of monetary easing, given the recent release of its tax-hiking budget that some economists see as potentially inflationary.
— Ruxandra Iordache
U.S. Federal Reserve readies to cut rates Thursday
The U.S. Federal Reserve is also set to deliver its latest interest rate decision on Thursday, following the conclusion of the U.S. presidential election.
The Fed is expected to cut rates by 25 basis points, having kicked off its rate cutting cycle with a jumbo 50 basis points reduction in September.
— Karen Gilchrist
Sharp dip in inflation paves the way for rate cut
U.K. inflation fell sharply to 1.7% in September, ramping up expectations for a November rate cut from the Bank of England.
The reading, which came in below expectations, marked a significant decline from August's 2.2% print and the first time inflation has fallen below the BOE's 2% target since April 2021.
Analysts have suggested that the decline could be short-lived, however, with an increase in the regulator-set energy price cap likely to push up prices slightly last month.
— Karen Gilchrist
Britons brace for higher mortgages despite rate cut
Britons are facing the prospect of higher mortgage rates for longer after the government's tax-and-spend budget threw off expectations for a series of near-term interest rate cuts.
Mortgage rates took a hit last week when a number of lenders raised borrowing costs amid concerns that Reeves' fiscal plans could push up growth and inflation, thereby delaying the BOE's easing path.
"It's confusing times for mortgage borrowers when expectation is for a base rate cut ... but fixed rates look set to rise," David Hollingworth, associate director at broker L&C Mortgages, said in a statement Friday.
Virgin Money became the first major lender to raise mortgage rates after the budget, lifting them by 0.15%. Some banks diverged on their outlook, however, with Santander reducing rates by 0.36%.
The average five-year fixed mortgage rate is now at 4.64%, down from 5.36% last year, while the average two-year fixed rate is 4.91%, down from 5.81% over the same period in 2023, data from property portal Rightmove showed last week.
"This isn't the radical spike in rates that have blighted mortgage rates in the last couple of years. But if funding costs don't ease, the sub 4% 5-year fixed rates that we've become used to in recent months could be under threat," Hollingworth continued, noting that more lenders might reconsider their rates going forward.
— Karen Gilchrist
