Sluggish, albeit positive, gross domestic product (GDP) growth in November has all but set in stone a February interest rate cut by the Bank of England according to City economists.
GDP expanded by 0.1% in November, versus an unexpected 0.1% contraction in October, undershooting market expectations, ONS figures showed on Thursday.
Given inflation figures on Wednesday showing a cooling rate of price rises throughout December, analysts noted the Bank of England was left with a window to cut interest.
Market bets moved “closer towards the Bank of England’s expectation of four rate cuts for this year,” XTB analyst Kathleen Brooks noted, adding reductions to 4.11% were now priced in, against 4.42% earlier in the week.
Central bankers would now “certainly cut rates in February,” Pantheon Macro added, with Hargreaves Lansdown’s Matt Britzman pointing to a 0.25% reduction to 4.50%.
That said, analysts picked out some bright spots within the GDP figures, which showed service and construction output up, but production sector contraction.
“Although this was shy of expectations it still signals some resilience, with services and construction pulling their weight despite a manufacturing slump,” Britzman said.
Consumer spending seemed to remain solid, Pantheon wrote, as risks rather surrounded businesses in the wake of the Budget and incoming US president Donald Trump.
February’s rate cut would also likely be coupled with caution from the Bank of England about rebounding price rises over the rest of the year, analysts said.
“With inflation heading above 3% in April and likely to stay there for most of the rest of 2025 we think the Monetary Policy Committee will have to give more hawkish guidance about the pace of rate cuts after February, paring back to signalling two to three cuts this year.”