In This Article:
The UK economy will fail to grow in the wake of the Budget, the Bank of England has warned, as companies respond to Rachel Reeves’s record tax raid by raising prices and slashing jobs.
Policymakers now expect zero growth in the final three months of 2024, a sharp downgrade compared with its previous projection of 0.3pc. The economy shrank in October, raising fears of recession.
While officials voted on Thursday to keep interest rates on hold at 4.75pc, Andrew Bailey, the Bank’s governor, said they could not commit to future rate cuts amid uncertainty over the Chancellor’s maiden Budget.
Analysts warned the economy faced further “cost shocks” in 2025 that would leave the UK mired in a toxic mix of slower growth and higher prices.
In a further blow to Sir Keir Starmer’s pledge to raise living standards across the UK, a survey conducted by the Bank showed an increasing share of households now believe stagnant growth is the new normal.
“There was a common view that the UK was moving from a cost-of-living crisis period to higher cost of living and lower living standards being the ongoing norm,” it said.
The poll warned that employers were increasingly responding to Ms Reeves’s £25bn increase in employer National Insurance contributions (NICs) by raising prices, signalling that interest rates may remain higher for longer to prevent the economy from overheating.
“Higher prices and lower employment were both cited more frequently than lower wages,” the Bank said. Businesses were reacting to the Budget with “lower headcount, hours and pay and higher prices than otherwise”.
Speaking on Thursday, the prime minister conceded his pledge to raise living standards across the country would “take some time” and would not “be fixed by Christmas”.
Sir Keir also stuck by a previous goal to push UK growth to the highest in the G7 club of rich nations.
Addressing the Commons Liaison Committee, Sir Keir claimed low income families were “already feeling the benefits of a Labour government through what we did in the Budget”.
However, the poll conducted by Threadneedle Street’s Agents - who speak to businesses across the country each quarter - said a growing share of working families believed Ms Reeves and the Prime Minister were out of touch with the pressures facing British families.
“Many households felt that the narrative of the economy having stabilised with inflation back to around 2pc was at odds with their experience,” the survey said.
Inflation, as measured by the consumer prices index (CPI), rose to 2.6pc in November, from 2.3pc in October.
The Bank added that the NICs raid was “weighing heavily on sentiment” and had left businesses “less confident of the extent and pace of recovery”.
It also warned that consumer gloom was weighing on the housing market, with respondents blaming the Budget for snuffing out a nascent recovery in property sales.
“Purchasers do not, generally, see this as a good time to buy,” the Bank said.
Benjamin Nabarro at Citi said a series of price rises next year, including higher private school fees and the minimum wage would keep prices higher for longer. “A picture is increasingly emerging of a large sequence of further cost shocks through 2025,” he said.
Economists at HSBC added: “The market has started to see the UK in particular as a stagflationary story - an outlook that could keep rates higher even if growth grinds to a halt and unemployment rises.”
Policymakers suggested that ongoing uncertainty over pay, including the impact of another big increase in the minimum wage had “added to the argument for a gradual approach to the withdrawal of policy restrictiveness”.
The minutes of its latest meeting revealed a growing split among policymakers about the extent to which the Chancellor’s maiden Budget will damage economic growth.
Three of its nine members voted for an immediate cut. However, the majority, including Mr Bailey, said recent developments had heightened their concerns about price pressures.
Investors now believe a rate cut in February is more likely than not. However, Mr Bailey said that the path of rate cuts would remain “gradual”.
Mr Bailey said: “We are looking very carefully at the economy. We’re looking very carefully at the degree of uncertainty. I think today the right decision was to hold.
“We need to make sure we meet the 2pc inflation target on a sustained basis. We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year.”
The Bank noted that bosses were left shocked by the extent of the national insurance rise, particularly Ms Reeves’s decision to lower the level at which businesses start to pay the levy from £9,100 to £5,000.
Companies warned that the increase would have a “substantial impact on their total labour costs”. The survey added: “This was largely unanticipated, particularly the threshold change, which will have a particularly significant impact on those employing relatively high proportions of part-time or low-paid workers.”
Some companies were responding by “accelerating investment in automation” or “offshoring labour”.
05:31 PM GMT
Signing off...
Thanks for joining us on our live coverage of the interest rate decision and the markets.
You can keep up with all our latest economics and business news here.
05:27 PM GMT
Europe’s stock index clocks worst day in more than a month after Fed’s hawkish signal
European stocks fell on Thursday, with the benchmark Stoxx 600 recording its biggest single-day drop since early November. It came after the US Federal Reserve signalled a slower pace of interest rate cuts next year and the Bank of England said it could not commit to future rate cuts.
The pan-European index closed 1.55pc lower, hitting a three-week low.
Global stocks ran into turbulence after the Fed cut rates as expected on Wednesday, but chairman Jerome Powell said more reductions in borrowing costs now hinged on further progress in lowering stubbornly high inflation.
This afternoon, Wall Street staged a minor rebound after US stocks posted their biggest daily decline in months yesterday. The S&P 500, Nasdaq and Dow Jones are all up 0.3pc.
05:04 PM GMT
Central banks adopting ‘Scrooge-like’ interest rates amid inflation jitters
Britain faces a “go-slow” on interest rate cuts that spells bad news for mortgage holders, a leading stockbroker has warned.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “There’s a chill spreading just before Christmas, with interest rate cuts on ice, and cold water being thrown on hopes for a rapid reduction in rates next year.
“The decision to keep rates on hold had been widely predicted, given that inflation has veered further away from target, but it did little to calm the jittery sentiment on the markets...
“We are seeing tighter Scrooge-like policy returning from central banks, who remain cautious about inflationary risks ahead - fresh tariffs from Trump are looming and in the UK the effects of the Budget changes on prices still hard to calculate.
“Nevertheless, with the UK economy contracting, and inflation still more likely than not to head back down towards target next year, we’re still on the rate-cutting track but the inclement economic weather means we are on go-slow. This could be good news for savers and those looking for an annuity, but bad news for mortgage borrowers.”
05:00 PM GMT
FTSE tumbles after interest rate warnings
The FTSE 100 closed sharply down this afternoon after the Bank of England warned over “heightened uncertainty in the economy”.
The market started the day down after the Federal Reserve cut interest rates last night, but signalled it would slow the pace of cuts in 2025. That caused a sell-off in New York last night. Traders in London followed suit.
The FTSE 100 lost 1.1pc and the mid-cap FTSE 250 dropped 1pc. The strongest riser among the top 100 companies was water utility Severn Trent, which gained 0.9pc after Ofwat agreed significant increases to bills.
04:36 PM GMT
Bailey plays down surprise rise in wage growth
Bank of England governor Andrew Bailey has played down the significance of this week’s figures showing an unexpected hike in wage growth.
The said there was “a bit of a surprise but nothing like what you saw in the headline number” after the economy returned to “more normal conditions”.
He said: “When we were were going through the Covid period, the labour market wasn’t functioning as normal.”
“Wages are set in markets. That’s important. And we in the Bank of England, when we determine interest rates, respond to the evidence that we see.
“I would caution a bit on the numbers we’ve seen this week. They were a bit of a surprise ... There was quite a bit of noise in the data coming from things that happened a year ago. There was a fairly unusual fall in the rate of growth of wages this time last year which didn’t last.”
04:25 PM GMT
The path on rates is downwards, says Andrew Bailey
Interest rates are going still going to be cut, but the timing is more uncertain, Andrew Bailey has said.
“We’ll come back at the beginning of February and start [assessing] again and review the evidence,” he told broadcasters.
“I think the path is downwards but I really would caution at this stage with the amount of uncertainty: we can’t tell you by how much or when particular moves are going to take place.
04:21 PM GMT
European markets drop after Fed decision
European stocks have fallen today after the US Fed turned unexpectedly cautious on rate cuts next year.
Chris Beauchamp, chief market analyst at online trading platform IG, said: “The shockwaves from last night’s ‘hawkish cut’ by the Federal Reserve [by quarter of a percentage point] continue to reverberate.
“Investors had hoped for an eventful meeting, but the [Fed’s] shift to a more cautious outlook caught the market napping, and the resulting sell-off was as quick as it was ugly... European markets have been unable to recover their footing today, unlike the US, where the selling has stopped for now.”
The International Monetary Fund views Wednesday’s rate cut and more cautious outlook as appropriate given high US economic uncertainty, it said this afternoon.
A spokesman said: “Data from the last few months shows that the labour market continues to cool at the same time that inflation has been somewhat higher than expected, but still trending down toward the target
“So with this background, we see the Fed’s action as appropriate.”
03:57 PM GMT
Wall Street rises to recover some of Wednesday’s sell-off
US stocks are stabilising this afternoon following one of their worst days of the year.
The S&P 500 rose 0.5pc, a day after tumbling 2.9pc when the Federal Reserve said it may deliver fewer cuts to interest rates next year than earlier thought. The Dow Jones Industrial Average was up 0.4pc and the Nasdaq Composite rose 0.6pc.
Indexes are still near their records, and the S&P 500 is still on track for one of its best years of the millennium. Wednesday’s drop just took some of the enthusiasm out of the market. Critics had already been warning that the market was overly buoyant and would need everything to go correctly for it to justify its high prices.
Traders are now expecting the Federal Reserve to deliver just one or maybe two cuts to interest rates next year, according to data from CME Group. A month ago, the majority saw at least two cuts in 2025 as a safe bet. Wall Street loves lower interest rates because they give the economy a boost, but they can also provide fuel for inflation.
Closer to home, the FTSE 100 fell 1.2pc after the Bank of England paused its cuts to rates and kept its main interest rate unchanged on Thursday. The move comes as inflation there moved further above the central bank’s 2[c target rate, while the British economy is flatlining at best.
The Bank of Japan also kept its benchmark interest rate unchanged, and Tokyo’s Nikkei 225 fell 0.7pc. Indexes also sank across much of the rest of Asia and Europe.
03:50 PM GMT
Cost of long-term gilts hit highest level since 1998
The yield on 30-year UK government bonds has reached their highest level since 1998.
The interest rate is currently 5.155pc, up from 4.551pc just a month ago.
Meanwhile, the 10-year gilt has risen to 4.582pc from 2.563pc yesterday.
It comes after the Bank of England held its Bank rate at the same level and traders lowered bets on interest rate cuts.
03:25 PM GMT
Starmer ‘alive to the danger of tariffs’ as Trump to return to White House
Sir Keir Starmer said he was “alive to the dangers of tariffs” but would not speculate about what Donald Trump might do on trade as US president.
Mr Trump’s impending return to the White House has raised concerns he may stoke global inflation with tax cuts and tariffs on foreign goods entering the American economy.
Asked how he would dissuade Mr Trump from imposing tariffs on the UK, the Prime Minister told the Liaison Committee of MPs: “It won’t come as any surprise to you, I am not a fan of tariffs and, therefore, we have to make sure that we avoid tariffs.
“We have got very good trade with the US, as we have got very good trade with other countries around the world. I want to improve on that.”
Sir Keir declined to give details of recent conversations with Mr Trump, but added: “Am I alive to the danger of tariffs? Yes of course. I’m against tariffs, but I’m not going to speculate as to what the incoming president might do.”
03:16 PM GMT
Bailey says market at ‘reasonable starting point’ on February rate cut
Andrew Bailey has indicated a February reduction in borrowing costs could be on the way after the Bank of England held interest rates at 4.75pc.
The Governor told broadcasters that money markets pricing is at a “reasonable starting point” about the chances of a move at the Bank’s next meeting.
Traders are betting there is about a 70pc chance that the Bank will cut rates at the gathering of the Monetary Policy Committee in February.
It comes after the Bank of England said there remains “significant uncertainty around how the economy might respond” to increases in employer National Insurance contributions and the minimum wage.
The Bank said: “The MPC is also monitoring the impact on growth and inflationary pressures from the measures announced in the Autumn Budget, and from geopolitical tensions and trade policy uncertainty.
“These developments have generated additional uncertainties around the economic outlook.”
03:04 PM GMT
Starmer: Living standards will not improve ‘for some time’
Sir Keir Starmer has acknowledged “it will take some time” before living standards improve across the country, after the Bank of England maintained its squeeze on households by keeping interest rates at 4.75pc.
The Prime Minister told the Liaison Committee of senior MPs “we want people to feel better off”.
The increase in the national living wage was a “pay rise for the three million who are the lowest paid” and public sector workers were also feeling the benefit of pay deals.
He said: “In addition to that, the measures that we put in place will improve living standards.
“It will take some time, of course it will.
“One of the biggest mistakes, I think, in the last 14 years was the idea that everything could be fixed by Christmas. It can’t.
“The planning will take time. The change in regulation will take time, we’ve got a national wealth fund which is investing, getting record investment into the country, that will take time.
“But already some of the lowest paid are already feeling the benefits of a Labour government through what we did in the Budget.”
02:51 PM GMT
Small UK stocks at risk of takeover as City battles for survival
One-third of smaller British companies are at risk of being picked off the stock market in a takeover next year after a slump in UK share prices, a City investment bank warned.
Peel Hunt said small and mid-cap companies worth up to £250m listed on the Alternative Investment Market (AIM) were highly vulnerable to acquisition in 2025 - with one in three at risk.
It comes as stock valuations have plunged this week amid expectations that the US Federal Reserve and the Bank of England will make fewer interest rate cuts next year.
According to Peel Hunt, 32pc of AIM companies with a market cap of £50m to £250m have seen their share price fall by more than 30pc in the last 12 months leaving them ripe for an approach from a buyer next year.
The prediction underscores fears about a mass exodus of companies from the London public markets, which has been battered by a takeover frenzy and dearth of new listings.
During 2024, one in 20 of all UK listed companies – around 5pc of the entire stock market – was put under offer publicly, the highest level Peel Hunt has seen in recent years
“We observe a wave of demand approaching the shores of the UK – with strategic and private equity buyers simultaneously active – and our coastal defences feel weaker than ever,” the bank said.
“Absent a change of events, it seems certain that 2025 will bring a major and sustained flow of UK takeovers.”
Peel Hunt pointed to a lack of liquidity, depressed valuations, and inability to use the capital markets driving the expected takeover boom.
AIM is a less regulated version of the larger London Stock Exchange and has less onerous listing requirements for companies.
However its future has been called into question owing to a shake-up of rules on the larger main market, which have reduced regulations and undercut AIM’s main selling points.
The Tony Blair Institute called for AIM to be scrapped earlier this year and merged into the main market after claiming it had “failed” in a mission to help scale up businesses.
Rachel Reeve’s Autumn Budget introduced a 20pc inheritance tax on AIM-listed stocks, reducing the previous 100pc relief to 50pc. The move was less bad than expected and triggered a rise in the AIM index.
Peel Hunt itself is listed on AIM.
02:35 PM GMT
US stocks bounce back after Fed triggers sell-off
Wall Street rebounded at the opening bell a day after the Federal Reserve’s projections of fewer-than-expected interest rate cuts wrong-footed some investors and pummelled US stocks.
The Dow Jones Industrial Average rose 1pc to 42,727.62, the S&P 500 gained 0.9pc to 5,924.66 and the Nasdaq Composite gained 1.1pc to 19,599.36.
The Fed on Wednesday said it expects to make just two rate cuts in 2025, half its September forecast and raised inflation expectations for the first year of the new Trump administration.
It sent the three main US stock indexes to their sharpest daily declines since August.
Traders now see just one quarter-point rate reduction by mid-2025, and see less than two cuts in total by the end of the year, compared with last week’s expectations of three rate cuts.
Sam Stovall, chief investment strategist of CFRA Research, said: “The market tends to ‘pop after a drop’ but I wouldn’t be surprised if we end up giving back much of the gains toward the end of the day because investors don’t want to be over exposed over the weekend.”
02:18 PM GMT
US economy surges as Fed cuts interest rates
The US economy grew faster than previously thought in the third quarter of the year, official figures showed a day after the Federal Reserve announced a cut to interest rates.
US GDP expanded by 3.1pc in the three months to September, the Commerce Department said, which was an upgrade on the 2.8pc initial estimate as American consumers kept spending and exports ticked higher.
It was an increase of the 3pc growth in the second quarter and means the US economy has grown by more than 2pc in eight of the last nine quarters.
Consumer spending, which accounts for about two-thirds of US economic activity, expanded at a 3.7pc pace, the fastest since the first quarter of 2023 and faster than the 3.5pc initially reported.
The health of the US economy, which is growing far faster than its international peers, comes after the Federal Reserve cut interest rates for the third meeting in a row on Wednesday to a range of 4.25pc to 4.5pc.
The Federal Reserve also indicated it could cut interest rates only twice next year, compared to predictions of four cuts just three months ago.
02:07 PM GMT
Mortgage rates to ‘yo-yo’ in coming months as interest rates held
Mortgage rates are likely to “yo-yo” in the months ahead, brokers have said, after the Bank of England held interest rates at 4.75pc.
Matt Smith, a mortgage expert at Rightmove, said: “We don’t expect any reductions in mortgage rates over the next few weeks, but as we progress into 2025, lenders are likely to look at ways to take advantage of increased demand as the busier home buying season starts.”
Nick Leeming, chairman of estate agent Jackson-Stops, said: “The Bank’s decision to hold rates steady provides a degree of stability, which is crucial for both the economy and the property market.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “While it is no surprise that the Bank of England maintained interest rates at 4.75pc given the recent rise in inflation, borrowers will still be disappointed.
“The trend in new mortgage pricing is downwards but mortgage rates are likely to continue to yo-yo over the next three months.
“Swaps (which are used by lenders to price mortgages) have been gradually falling for a month but all those falls have been wiped out over the past three days.
“It is only when we start getting regular base rate cuts that the market will react favourably and swap rates will fall.
“Until then swaps will continue to fluctuate as much as we have seen over the past 12 months, which makes it harder for lenders to consistently offer lower mortgage rates.”
01:45 PM GMT
Mortgage pricing rates edge lower after Bank of England hold
The main pricing mechanism for fixed-rate mortgages edged lower following the latest decision by the Bank of England, offering hope for mortgage borrowers that lower rates could be on the way.
Closely followed two-year “swap” rates edged lower to 4.31pc having risen as high as 4.39pc before the interest rate announcement, which revealed a split among decision makers at the Bank.
However, rates have surged from 4.1pc over the last week after data showed rising wage growth and inflation, as well as expectations of slower rate cuts in the US.
Peter Stimson, of MPowered Mortgages said: “Despite the current backdrop of rising swap rates, we can expect to see some frenzied competition between mortgage lenders in January.
“The first weeks of the year are traditionally an important time for lenders, with many slicing into their margins to offer lower interest rates in a bid to win new customers.
“While the Base Rate has only been cut twice in 2024, the prospect of three or more reductions in 2025 will embolden lenders to price very competitively at the start of the year as they battle for market share.”
However, Justin Moy of EHF Mortgages saod: “This hold of the Base Rate will do little to make change in the mortgage rates currently available, the expectation of a base rate hold was almost unanimous across the financial markets, and Swap rates had priced for that decision too.
“It’s unlikely we will see any wholesale mortgage rate cuts early in 2025, it’s more about competitive pressures within the High Street and the clamber to start the year well as lenders.”
01:28 PM GMT
Bank of England could cut faster amid low growth, say economists
The Bank of England could cut interest rates faster if Britain’s economy continues to show signs of weakness, economists have said.
UK GDP shrank by 0.1pc in October, the second month in a row that the economy had contracted, and policymakers at the Bank predicted there would be zero growth in the final three months of this year.
Barret Kupelian, chief economist at PwC, said the low growth figure “is problematic, particularly in view of the fact that our largest trading partner, the eurozone, is slowing down, and there are likely to be more trade frictions on an international level”.
He added: “Entering 2025 it is a mixed view on the UK economic outlook. If the growth outlook disappoints, then the Bank of England could be emboldened to go down the same road as the European Central Bank and cut its headline policy rates faster.”
Francesco Pesole of ING said: “The apparent growing dovish front within the Monetary Policy Committee in spite of the latest hawkish wage data potentially suggests a greater focus on slowing activity.
“That reinforces our dovish view on the Bank of England for next year – we expect 150bp of cuts, against market expectations for around 55bp.”
01:04 PM GMT
February rate cut ‘odds on’, say economists
A February interest rate cut is now “odds on”, economists have said, although there is division over how quickly the Bank of England will lower borrowing costs for the rest of next year.
The Bank voted to hold rates at 4.75pc today but three policymakers dissented and voted for a cut.
While the split prompted traders to bet on more rate reductions next year, Governor Andrew Bailey said the Bank favours a “gradual approach to future interest rate cuts” but pointed to “heightened uncertainty in the economy”.
Rob Wood of Pantheon Macroeconomics said he thinks “the details of the minutes are cautious and therefore more hawkish than that 6-to-3 headline would suggest”.
He said: “We continue to expect three rate cuts next year, in February, May and November, but see two-sided risks. We wait for more details on pay-settlements in the new year, and the next GDP release to see if the PMI is giving a bum steer or not.”
Ruth Gregory of Capital Economics disagreed, adding: “While the Bank of England left interest rates at 4.75pc today, it struck a slightly more dovish tone in its communications.
“This supports our view that the next 25 basis points (bps) rate cut will come in February and that the Bank will cut rates quicker than investors expect, at alternative meetings until rates reach 3.5pc in early 2026.”
12:46 PM GMT
‘I fully back the Bank of England’, says Reeves
Rachel Reeves said she can only “put more money in the pockets of working people” if the Bank of England is able to bring inflation under control.
The Chancellor said: “I know families are still struggling with high costs. We want to put more money in the pockets of working people, but that is only possible if inflation is stable and I fully back the Bank of England to achieve that.
“Improving living standards across the country is our number one focus, and is why I chose to protect working people’s pay slips from tax rises, froze fuel duty and increased the National Living Wage for three million people.”
12:42 PM GMT
FTSE slump continues as interest rates held at 4.75pc
The FTSE 100 remained in a rut following the split vote at the Bank of England to hold interest rates at 4.75pc.
The UK’s blue-chip stock index was last down 1.3pc to 8,094.29 while the midcap FTSE 250 had fallen 1.1pc to 20,374.37.
It comes after the Bank of England warned it expects zero growth in the final three months of 2024.
Daniela Sabin Hathorn of Capital.com added: “The potential for a period of slow growth is likely to weigh on the performance FTSE 100, especially as the US is expected to continue to outperform.
“A positive catalyst could be confirmation from the Bank of England that it has become more dovish, and it expects to cut rates faster than anticipated.”
12:31 PM GMT
Rates setters voted for cut amid ‘sluggish demand and weakening labour market’
The three policymakers who voted for an interest rate cut pointed to “sluggish demand and a weakening labour market” as justification for lowering borrowing costs.
Summarising their views, the Bank of England said: “In the short run, these factors, alongside higher uncertainty and weak global conditions, paired with the temporary uptick in headline inflation entailed a policy trade-off.
“In the medium term, a continued stance that was very restrictive risked deviating unsustainably from the 2pc inflation target and opening an unduly large output gap. Given the evolving balance of risks, a less restrictive policy rate was warranted.
12:22 PM GMT
Interest rates need to be ‘restrictive for sufficiently long’
The Bank of England indicated interest rates will need to remain high for a longer period as inflationary pressures in Britain “are resolving more slowly”.
The decision to keep interest rates on hold comes after inflation rose to 2.6pc in November, rising for the second month in a row for the first time in two years.
The Bank said: “A gradual approach to removing monetary policy restraint remains appropriate.
“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2pc target in the medium term have dissipated further.”
12:17 PM GMT
Pound falls after Bank split on interest rate cut
The pound has given up a lot of its gains today after three members of the Bank of England’s Monetary Policy Committee (MPC) voted for an interest rate cut.
Although the Bank held borrowing costs at 4.75pc, three members of the voted for a reduction in borrowing costs.
Sterling, which had been up as much as 0.7pc against the dollar, was last up 0.3pc to hover just over $1.26.
The pound was down 0.2pc against the euro, which is worth 82.6p.
12:12 PM GMT
Traders increase bets on interest rate cuts as Bank of England split
Traders have increased bets on interest rate cuts next year after the Bank of England’s policymakers were split over whether to cut interest rates.
Money markets indicate there is now about a 70pc chance of a reduction in borrowing costs in February, after the Monetary Policy Committee was split 6-3 on whether to hold interest rates or deliver another cut.
The odds of a February cut had fallen to as low as 50pc shortly before the latest decision.
Investors also expect the Bank to announce a second cut next year by November.
12:03 PM GMT
Bailey pushes for ‘gradual approach’ amid ‘heightened uncertainty’
Andrew Bailey, the Governor of the Bank of England, said:
We’ve held interest rates today following two cuts since the summer.
12:02 PM GMT
Policymakers split over interest rates
The Monetary Policy Committee which sets interest rates was split 6-3 over its decision to hold interest rates at 4.75pc.
Sir Dave Ramsden and Alan Taylor joined Swati Dhingra in voting for a cut to borrowing costs.
12:00 PM GMT
Interest rates held at 4.75pc
The Bank of England has left interest rates unchanged amid rising fears over inflation.
The Monetary Policy Committee left the Bank Rate on hold at 4.75pc on Thursday a day after official figures showed prices rising faster than its 2pc target.
Traders have slash bets on policymakers reducing borrowing costs next year after the Office for National Statistics (ONS) said this week that inflation rose to 2.6pc in November.
The ONS also revealed on Tuesday that wages grew at a faster than expected pace in the three months to October.
Traders are pricing in fewer than two cuts by the Bank of England next year, with their decision making also influenced by the US Federal Reserve’s latest meeting on Wednesday.
It projected it will cut interest rates twice next year, compared to a prediction of four cuts just three months ago.
11:58 AM GMT
Interest rate decision shortly
The Bank of England will announce its next interest rate shortly in a few minutes. Stay tuned...
11:36 AM GMT
Bank will need to cut faster next year, says UBS
Although money markets indicate the UK may have as few as one cut next year, not all analysts are convinced.
Traders widely expect the Bank of England’s Monetary Policy Committee (MPC) to keep interest rates on hold at 4.75pc after inflation rose to 2.6pc in November and wages grew at a faster than expected pace in the three months to October.
Unicredit strategists said: “The MPC will very likely repeat its rate guidance for ‘a gradual approach to removing policy restraint’, which probably means one 25 bps cut per quarter.
“In our view, the Bank of England will need to cut rates faster next year, with one 25 bps cut per meeting in Q1 2025, as we expect the deterioration in the private-sector labour market to become more visible.”
The FTSE 100 was last down 1.4pc amid the broad market sell-off triggered by the Federal Reserve’s weaker projections for rate cuts.
11:29 AM GMT
European stocks plunge as rate-cut hopes dashed
European stocks were on course for their biggest drop in five weeks ahead of the Bank of England rates decision, after the US Federal Reserve signalled a slower pace of cuts next year.
The pan-European Stoxx 600 index was down 1.5pc, with the Cac 40 in Paris plunging 1.6pc and the Dax in Frankfurt falling 1.2pc.
US stocks plunged after the Fed cut rates as expected, but Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation.
Matt Britzman of Hargreaves Lansdown said: “Wall Street’s reaction underscores the Fed’s delicate balancing act as it tightens its outlook on easing, forcing markets to recalibrate their rate expectations.”
11:22 AM GMT
Fed ‘setting the stage for few rate cuts’
Preston Caldwell, chief US economist at Morningstar, said:
The Fed is setting the stage for the possibility of few (or even zero) additional rate cuts in 2025 and 2026.
10:58 AM GMT
Traders slash bets on interest rate cuts next year
Traders are unwinding their bets on interest rate cuts by the Bank of England next year in the lead up to its next monetary policy announcement.
Money markets now indicate there is a 56pc chance of the next interest rate cut coming in February, with investors wagering it could come as late as May.
As recently as Monday, investors were betting on an 80pc probability of a quarter-point cut at the first meeting of the Monetary Policy Committee in 2025.
Citigroup strategist Jamie Searle said: “We think the market is reaching the limit of how many cuts it can take out given the Bank of England is likely to reaffirm the gradual easing bias into 2025 with policy still restrictive.”
10:40 AM GMT
Pound recovers as Bank of England poised to hold rates
The pound has rebounded against the dollar as traders cut back bets on the Bank of England cutting interest rates next year.
Sterling was up 0.7pc today to $1.265 after plunging by 1.2pc on Wednesday after the US Federal Reserve indicated it would reduce borrowing costs fewer times next year.
Money markets now indicate the Fed will only cut rates once next year, with the next reduction coming as late as July.
Traders also think the Bank of England will only cut rates once for certain next year - although there is a strong chance of two cuts - but such a move was already being priced in after strong wage figures earlier this week.
Asked why Fed officials are looking to slow their cuts, Chair Jerome Powell pointed to how well the job market is performing overall and how recent inflation readings have picked up.
He said some Fed officials, but not all, are also already trying to incorporate uncertainties inherent in a new administration coming into the White House.
Worries are rising on Wall Street that President-elect Donald Trump’s preference for tariffs and other policies could further fuel inflation.
Mr Powell said: “When the path is uncertain, you go a little slower.”.
He added it is “not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down”.
10:17 AM GMT
FTSE plunges ahead of interest rate decision
The FTSE 100 plunged as traders slashed bets on the number of interest rate cuts expected next year.
Britain’s blue-chip stock index sank by 1.2pc to 8,101.41 in early trading while the midcap FTSE 250 dropped by 1.2pc to 20,362.68.
It followed a sharp tumble in stocks on Wall Street on Wednesday after the Federal Reserve hinted it may deliver fewer rate cuts in 2025 than earlier thought.
The Fed cut its key rate by a quarter of a percentage point to between 4.25pc and 4.5pc, as expected.
However, Fed officials released projections on Wednesday showing the median expectation among them is for two more cuts to the federal funds rate in 2025, or half a percentage point’s worth.
That is down from the four cuts expected just three months ago.
Fed Chair Jerome Powell said: “We are in a new phase of the process.”
10:06 AM GMT
Bank of England expected to leave rates at 4.75pc
The Bank of England is expected to leave interest rates at 4.75pc today amid rising inflation and wage growth.
The Bank will announce the results of its next policy decision at noon.
The verdict will come a day after new official figures showed UK inflation increased in November for the second month in a row.
The cost of train travel, petrol, and live entertainment were among those to increase last month, as well as everyday groceries such as butter and eggs.
Interest rates, which influence how much banks charge for loans and mortgages, are used as a tool by the central bank to keep inflation at its 2pc target level.
But the consumer prices index (CPI) measure of inflation has risen above the target in recent months, rising to 2.3pc in October and 2.6pc in November.
The Bank will also weigh up recent figures showing wage growth rose by more than expected in the three months to October, and separate figures showing the UK economy declined in October.
Most economists think the latest data, and the prospect of price pressures increasing in the coming months, will persuade the Bank’s policymakers to hold interest rates steady.
This would mark a continued pause on its rate-cutting cycle having reduced the level in August and again in November.
10:00 AM GMT
UK borrowing costs surge ahead of Bank of England interest rate decision
Government borrowing costs have surged to their highest level this year ahead of the Bank of England’s next interest rate decision today.
Britain’s bond market suffered a sell-off ahead of the next meeting of the Monetary Policy Committee, where rate setters are expected to leave borrowing costs unchanged.
The yield on 10-year UK gilts - an indicator of government borrowing costs - rose as much as nine basis points to 4.65pc today, its highest level since October last year, as traders reduced bets on interest rate cuts next year.
It comes after the US Federal Reserve cut interest rates on Wednesday but signalled it would be more cautious about lowering borrowing costs in 2025.
Donald Trump’s return to the White House is expected to lead to tax cuts and tariffs, which many economists fear could stoke inflation.
Money markets indicate the Bank of England is only certain to cut rates at least once next year, with the next reduction potentially coming as late as May.
Traders think there is a roughly 80pc chance of a second cut by November, compared to expectations of three cuts as recently as Friday.