Markets taken aback by Bank of England's rate-holding decision despite divided vote.

• The Bank of England concluded its final meeting of the year without altering interest rates, despite U.K. inflation reaching an eight-month peak.
• While six members of the Monetary Policy Committee voted to hold rates, three were in favor of reducing them. This was in contrast to the forecast of only one member cutting rates, as predicted by economists polled by Reuters.
• The BOE staff has revised their economic forecast for the fourth quarter of 2024, predicting no growth instead of the previously forecasted 0.3% expansion, as stated in their November report.

The Bank of England concluded its final meeting of the year without altering interest rates, despite U.K. inflation reaching an eight-month peak.

Policymakers' concerns with stubborn services inflation and wage growth led analysts to widely expect a rate hold at the December meeting.

This year, the BOE has reduced its key rate from 5.25% to 4.75% in two quarter-percentage-point steps.

While six members of the Monetary Policy Committee voted to hold rates, three unexpectedly voted to reduce them. This was in contrast to the forecast of only one rate cut by economists polled by Reuters.

The BOE announcement caused Sterling to gain against the U.S. dollar, trading 0.2% higher at 12:22 p.m. However, the greenback staged a broad rally on Wednesday after the U.S. Federal Reserve cut interest rates by a quarter point but signaled a more hawkish outlook for 2025. The greenback gave up some gains on Thursday morning.

The BOE stated that the November U.K. headline inflation of 2.6% was slightly higher than anticipated, with services inflation remaining "high."

The BOE staff has revised their economic forecast for the fourth quarter of 2024, predicting no growth instead of the previously forecasted 0.3% expansion, as stated in their November report.

Recent months have seen weaker U.K. growth figures than anticipated, with the economy experiencing a 0.1% contraction in October.

This week, money markets reduced their predictions for the pace of future cuts in interest rates, following the release of inflation and wage growth data. They are now anticipating approximately 50 basis points of cuts, down from an initial forecast of around 70 basis points on Monday.

According to Suren Thiru, the Institute of Chartered Accountants in England and Wales, the split vote decision and the dovish tone of the minutes suggest that a February interest rate cut is still a possibility, although it has not yet been finalized.

"The Bank of England may face challenges in loosening its policy due to the possibility of inflation increasing and the complexity of determining the timing of future interest rate cuts, particularly if stagflation becomes a concern."

This is a breaking news story and will be updated shortly.