UK Inflation Still Sizzling: What the Bank of England’s Next Move Looks Like
Last month’s UK inflation report turned out to be “not quite the end-of-year fairy‑tale” many economists had hoped for.
CPI jumped 2.6% year‑over‑year, the fastest pace since March — and that’s 0.2 percentage points above the Bank’s own projection of 2.4%. Even core inflation nudged up to 3.5%, just 0.2pp ahead of October but still shy of what markets expected.
Services Prices Keep It Hot
The most annoying part? Services costs spiked 5% YoY for two straight months now. That’s the reason behind the Bank’s trembling fingers, even though the BoE’s forecast had hidden reasonable wiggle room.
What Does It Mean for the December MPC Decision?
- In December, a 25‑bp policy cut is basically a long‑shot. The margin of error feels slimmer than ever after October’s earnings surprises.
- Inflation data today seals the fate — the rate is set to stay put tomorrow. But that doesn’t mean everyone will agree; our super‑dovish colleague Dhingra is nearly guaranteed to push for another cut.
Looking Ahead to 2025
Early indicators still point to a gradual easing approach. The “normal” play is a 25‑bp cut in February, followed by smaller cuts every quarter. Yet there’s still a risk that the next steps could lean even more dovish if momentum seems to stall.
Market Sentiment: Hawkish vs. Dovish
- The currency markets are becoming a bit over‑hawkish. The GBP OIS curve, at yesterday’s close, isn’t pricing a cut until May.
- Flat spot GBP, plus pressure on Gilts, is what traders’ll likely sweet‑en themselves over.
Bottom line: Inflation’s stubborn grip means the BoE is leaning toward keeping rates steady for now, but staying tuned for further moves in early 2025.
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