**Emergency Halt to Rate Cuts: The Bank of England Diverges**
*By Futunn Editorial Team*
The global economic and policy landscape of 2024 has reached an inflection point, defined by sharply divergent paths among the world’s central banks. While the global market expected a gradual pivot toward monetary easing this year, spurred by softer inflation data and moderating economic growth, several major central banks have instead chosen to maintain or even reinforce their positions. At the forefront of this divergence is the Bank of England (BoE), whose surprise halt to previously anticipated rate cuts has caught both investors and policymakers off guard.
#### 1. **Global Rate Expectations Enter 2024**
Entering 2024, most economists and financial market participants foresaw a synchronized drift toward lower interest rates across major economies:
– Many central banks had spent over two years tightening policy to combat runaway inflation, moving policy rates to their highest levels in over a decade.
– As inflation trended downward, markets began to factor in a series of rate cuts, side-by-side with expectations of softer growth as monetary lags worked their way through the global economy.
– The US Federal Reserve, European Central Bank (ECB), and Bank of England were all widely expected to ease policy, though at differing speeds.
#### 2. **Unexpected Stickiness in UK Inflation**
The narrative in the UK took a sharp turn as 2024 progressed. While inflation initially decelerated in response to tighter policy, it soon showed signs of persistence:
– Despite headline inflation dropping from double-digit territory in late 2022, core price pressures proved resilient, particularly in the services sector.
– Unemployment remained relatively low, underpinning wage growth and feeding into the inflation dynamic.
– The combination of sticky core inflation and solid wage gains led policymakers to reassess the urgency and immediacy of rate cuts.
#### 3. **BoE’s Decision: A Divergent Path**
In their June policy meeting, the Bank of England stunned markets with a clear message: there would be no rate cut in the near term, despite widespread expectations.
Key drivers behind the BoE’s exit from coordinated easing include:
– Strong wage growth, with average weekly earnings above 5 percent year-on-year, maintaining inflationary pressures.
– Robust consumer demand, supported by a tight labor market.
– Services inflation, running above the BoE’s target range and outpacing most other G7 economies.
**Governor Andrew Bailey** underscored the bank’s concerns, emphasizing that while headline inflation was falling, “the job is not done.” Persistent services and wage inflation, he noted, had to be fully tamed before policy could shift decisively toward easing.
#### 4. **Contrasts with Other Central Banks**
While the Bank of England adopts a hawkish stance, other major central banks are already making dovish overtures:
– **US Federal Reserve:** The Fed paused rate hikes earlier in the year and signaled its intention to cut rates, though it remains highly data-dependent.
– **European Central Bank:** The ECB delivered its first rate cut in June, citing declining inflation and slowing eurozone growth.
– **Bank of Canada:** The BoC has also initiated rate reductions, with softening labor markets and moderating inflation paving the way.
– **Swiss National Bank and Riksbank:** These smaller European central banks have likewise begun to ease policy, further contrasting with the BoE’s approach.
#### 5. **Market Fallout: Forex Volatility and Sterling Strength**
The BoE’s decision has had immediate and significant impacts in currency markets:
– The British pound surged against both the US dollar and euro following the bank’s announcement.
– Traders reversed short positions on the pound, betting that higher UK rates would persist for longer than in the eurozone or US.
– UK government bond yields rose sharply as investors pared back expectations for near-term easing.
Notable greater volatility rippled across global forex markets, as portfolio managers reassessed both relative interest
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