Major central banks follow US Fed, keep interest rates unchanged

Bank of England keeps rates steady

In its recent meeting, the Bank of England maintained interest rates at their 15-year high of 5.25%, a decision supported by a majority vote of 6-3. The bank's caution stems from concerns over UK inflation being more persistent compared to the U.S. and Eurozone. While three members voted for a rate hike, there was no consideration for a rate cut. This decision aligns with market expectations and reflects the Bank's view that UK inflation may not ease back to target levels soon.

In contrast, the Federal Reserve held interest rates for the third consecutive meeting, signaling a shift in its outlook for 2024. The Fed now anticipates three rate cuts next year, expecting a slowdown in inflation growth towards its 2% target.

The Bank of England's stance also overlooks recent data indicating slower wage growth and a 0.3% GDP decline in October, raising concerns about a potential recession before the expected 2024 national elections. Following the announcement, the British pound strengthened, with GBP/USD climbing from around 1.2660 to 1.2730.

European Central Bank holds rates

Simultaneously, the European Central Bank (ECB) decided to maintain interest rates, marking a consistent approach among major central banks. The ECB's decision came amidst a notable decline in the US dollar and expectations of ongoing inflationary pressures. Consequently, the euro experienced a surge, with EUR/USD reaching around 1.0980.

The ECB also revised its economic forecasts, expecting a 0.6% real GDP increase in 2023 and lowering its 2024 growth projection from 1% to 0.8%. Additionally, the Bank of England announced plans to cut its overall budget and lowered its growth expectations for the upcoming year, indicating a cautious approach in the face of economic challenges.