Bank of England keeps interest rates unchanged even as inflation rises to eight-month high

By Crypto Gloom On Dec 19, 2024

Key Takeaways

The Bank of England kept interest rates unchanged at 4.75% as inflation in the UK rose to its highest level in eight months.
High transport and housing costs are the main reasons for the recent rise in UK inflation.

With inflation in the UK rising to its highest level in eight months, the Bank of England (BoE) has decided to hold off on interest rate cuts.

Inflation in the UK rose slightly in November 2024, according to Office for National Statistics data released today. The consumer price index (CPI) rose from 2.3% in October to 2.6% in November, exceeding the central bank’s target of 2% for the second consecutive month.

The consumer price index, which includes the cost of owner-occupied housing (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 rising transportation costs and rising housing costs. The overall inflation rate is showing an upward trend, but the rate of increase has slowed compared to the previous month.

Persistent inflation in the services sector remains a key concern for the central bank, although recent inflation figures remain consistent with market expectations and some inflationary pressures are actually easing.

The services sector, which makes up about 80% of the UK economy, has seen stubbornly high inflation rates, forcing the central bank to maintain a cautious approach.

Morningstar reports that economists have already ruled out the possibility of a rate cut from the current 4.75% as soon as UK inflation data comes out, as the Bank of England aims to maintain its target inflation rate of 2%.

The BoE’s decision comes after the US Federal Reserve cut interest rates by 25 basis points, in line with market expectations. The Bank of Japan also maintained its current interest rate on Thursday.

The US central bank’s decision was in line with forecasts, but the Fed’s message was surprisingly more hawkish.

Federal Reserve Chairman Jerome Powell said the Fed would slow the pace of future interest rate cuts given that inflation is still above its 2% target. Interest rate cuts in 2025 may be limited to two instead of four, depending on close monitoring of the economic situation.

Global markets took a hit following the Federal Reserve’s hawkish signals.

U.S. stocks suffered their biggest one-day decline in months, with major indexes posting significant losses. European stock markets also plunged, reflecting a widespread sell-off following the Federal Reserve’s stance.

Risk-sensitive assets, including cryptocurrency assets such as Bitcoin, have faced downward pressure as market sentiment has turned cautious. The price of Bitcoin fell about 6%, trading below $100,000 on Wednesday evening before recovering to above $102,000 as of press time, according to TradingView.