The Bank of England has maintained its forecast for “gradual” interest rate cuts for next year, after surprisingly backing a cut this month.
Its pricing committee, while deciding to keep Bank interest rate maintained at 4.75%, noted higher than expected salary increases and inflation despite a slowdown in the economy in the second half.
However, three members supported a reduction, meaning the vote was 6-3 in favor of keeping the change.
A single dissenting voice was expected.
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Governor Andrew Bailey said: “We believe a phased approach to future interest rate reductions remains the right solution, but with increased uncertainty in the economy, we cannot commit at this time. and the extent of rate reduction over the coming year. »
He later said in an interview: “I think it’s a downward path but…we’ll come back at our next meeting in February and review it.” »
Earlier this month, Mr Bailey expressed his concerns on how businesses would react to budgetary measures, such as the increase in employer social security contributions from April.
Lobby groups and many individual businesses have warned that the extra costs will be passed on, potentially adding to inflationary pressures.
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Mr Bailey also raised concerns that trade tariffs could contribute to accelerating price growth. US President-elect Donald Trump has warned of tariffs covering all US imports as part of his agenda to protect American industry and jobs.
The Bank said on Thursday it was still assessing the budget’s effects on the outlook.
He also repeatedly raised the threat of wage rate cuts.
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The Bank doesn’t like wages to rise too quickly – currently at twice the rate of prices – because this could fuel future demand in the economy and worsen inflation in the long term.
Economists had widely expected four rate cuts in 2025, following two reductions this year, as inflation fell back towards the Bank’s 2% target following the energy price shock in the West.
But financial markets, which charted a similar path a few weeks ago, are now forecasting only two-quarter point reductions due to the added weight on inflation.
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However, the chances of a rate cut at the Bank’s next meeting in February have increased from almost 50% to 66%, according to LSEG data after the minutes of the December 18 meeting were released.
Such a move would be widely welcomed by millions of borrowers who are also still feeling the effects of the broader cost of living crisis.
Prices have generally not fallen but have increased at a much slower pace. Increases in energy bills for next winter are part of the current pressure on household spending.
Chancellor Rachel Reeves said: “I know families are still struggling with high costs. We want to put more money in workers’ pockets, but this is only possible if inflation is stable and I fully support the Bank of England in achieving this.
“Improving living standards across the country is our number one priority, and that is why I have chosen to protect workers’ pay slips from tax increases, freeze taxes on fuel and to increase the national living wage for three million people.”