Barclays says Bank of England to hold rates in December meeting

(Reuters) – Barclays expects the Bank of England to hold interest rates at its December meeting, revising its prior forecast of a cut, citing the central bank’s cautious tone that emphasized uncertainty and gradual policy moves.

The Bank of England cut interest rates on Thursday for only the second time since 2020 and said future reductions were likely to be gradual as it predicted the British government’s first budget would lead to higher inflation and economic growth.

“The main messaging from the press conference was repeated emphasis on the extent of uncertainty at the current juncture: uncertainty around the impact of the fiscal package; uncertainty on the current state of the labour market…,” Barclays said in the note on Thursday.

Barclays said this uncertainty, which is unlikely to dissipate sufficiently in the coming weeks, along with the central bank’s emphasis on “gradualism” and its inflation forecast, will lead to rates being held steady in December.

However, delayed rate reductions would mean a more aggressive cutting cycle, Barclays said.

It expects the central bank to cut interest rates by 25 basis points in February 2025, followed by sequential 25 bps cuts in May, June, August and September, taking the “terminal rate” to 3.50%.

The Bank of England said the government’s plans were likely to add almost half a percentage point to inflation at its peak in just over two years’ time and cause it to take a year longer to return sustainably to the central bank’s 2% target.

(Reporting by Gokul Pisharody in Bengaluru; Editing by Mrigank Dhaniwala)