Weekly Roundup: Interest Rates Held in the UK Amid US Cuts and Market Volatility

In this week's roundup, we explore the Bank of England's expected decision to maintain interest rates amid inflation concerns, alongside the US Federal Reserve's recent quarter-point cut that caused market turmoil.

Weekly Roundup: Key Developments in UK and US Interest Rates

As we move into the next week, the economic landscape is dominated by pivotal decisions regarding interest rates in both the UK and the US, with rising inflation and job growth shaping the narratives.

Bank of England UK interest rates in focus amid inflation concerns

UK Interest Rates Expected to Hold

The Bank of England (BoE) is set to announce its next monetary policy decision soon, with forecasts indicating that interest rates will remain at 4.75%. This maintenance comes as inflation has ticked upwards, marking the second consecutive month of rising prices, with reports noting a jump to 2.6% in November. The path ahead is shaped by soaring costs of essential services such as train travel and fuel, along with increased prices for everyday items like groceries.

With inflation remaining above the Bank’s targeted 2%, experts believe the monetary policymakers will forego rate cuts in light of the latest economic data. Rob Wood, Chief UK Economist at Pantheon Macroeconomics, highlighted the importance of wage growth, noting:

“Stronger-than-expected inflation and wage growth offsetting weaker GDP growth signals will play into the Bank’s decision.” Despite financial market traders implying only a 10% chance of a rate cut, uncertainty looms as preparations for the new fiscal policies are rolled out.

UK Economic Data Rising inflation impacts consumer choices

US Interest Rates Cut Amid Market Jitters

Across the Atlantic, the US Federal Reserve (Fed) has announced a quarter-point reduction in interest rates, leading to a new range of 4.25% to 4.5%. However, this cut stirred disappointment among investors as Fed officials hinted at a more cautious approach for future rate reductions.

The Fed has scaled down its future rate cut projections significantly, now forecasting only two cuts by the end of 2025, a notable reduction from previous estimates. This news sparked a significant downturn in the stock markets, with the S&P 500 and Nasdaq both experiencing steep declines of nearly 3% each. Fed Chair Jerome Powell expressed:

“The decision to cut was a much closer call than the vote suggested.”

Investors are keenly anticipating the upcoming core PCE price index figures, which could serve as a bellwether for ongoing inflation dynamics and future monetary policy adjustments.

Market Reaction Market responses to Fed announcements remain volatile

Conclusion

Amid fluctuating inflation rates and substantial economic uncertainty, both the UK and US are navigating their interest rate policies with caution. The decisions made in the coming days will play a crucial role in shaping financial conditions for households and businesses alike as we head into 2025. Stay tuned for more updates as these global economies continue to evolve.