Earlier this week it was reported that the U.S. Federal Reserve was holding interest rates at 5.25%-5.5%, the fourth time in the last five meetings that the rate has been left unchanged. The latest CPI rate in the U.S was 3.1% for November.
The European Central Bank also left its interest rate steady following a December 14 meeting, albeit at a record 4%, in a move confirmed by ECB President Christine Lagarde.
Rate cuts are expected by all three central banks in 2024, although the recent data and position of the BOE led some asset managers to predict that it would be the last to do so.
Reacting to the BOE hold, Michael Metcalfe, head of macro strategy at State Street Global Markets, said in an emailed comment: "Three (committee) members still voted an immediate hike and the decision to hold or hike rates remains finely balanced. Clearly, the BOE needs to see greater progress on inflation to effectively signal that rates have finally peaked."
Metcalfe added: "With the BOE potentially lagging rate cuts elsewhere early next year, this will provide further impetus for asset managers to continue to eliminate their still sizable sterling underweight."
Seema Shah, chief global strategist at Principal Asset Management, felt both the BOE and ECB faced "more serious growth challenges" than the Fed.
"The U.K. is struggling with a more elevated and persistent inflation problem so, while recession risk is more pertinent for the U.K., the Bank of England needs to maintain its restrictive stance for a prolonged period to ensure inflationary pressures subside sufficiently", she said in separate comments.
"The ECB retains enough caution around inflation to tread very carefully around pivot expectations, emphasizing the need to keep rates elevated as long as necessary."
Reasons the U.K. is lagging behind on an economic recovery include a structural labor shortage stemming from issues such as an ageing population and a wave of early retirements taken during the COVID-19 pandemic, according to Vivek Paul, U.K. chief investment strategist at the BlackRock Investment Institute.
In an emailed statement, Paul said: "The Bank of England isn't riding to the rescue of a flatlining economy. It kept the policy rate on hold even as the economy shrank in October and inflation is cooling.
"Why? It is still too early to declare victory in its inflation fight given it is still well above its 2% target. It faces a tougher trade-off between protecting growth and controlling inflation than other developed markets; compared to the U.S., growth has been weaker and the disinflation process bumpier," he said.
The next BOE decision on the U.K. interest rate will be published on February 1.
