LONDON, Dec 19 (Reuters) - The Bank of England kept its main interest rate unchanged at 4.75% on Thursday but policymakers became more divided about whether rate cuts were needed to tackle a slowing economy.

Three of the BoE's nine-person Monetary Policy Committee voted for a quarter-point rate cut instead, much higher than the one member economists polled by Reuters had expected.

But BoE Governor Andrew Bailey said the central bank needed to stick to its existing "gradual approach" to cutting rates.

MARKET REACTION:

STOCKS: London's FTSE-100 stock index (.FTSE) , opens new tab cut its losses following the decision and was down around 1.1% by 1224 GMT. The domestically focussed FTSE-250 (.FTMC) , opens new tab moved similarly.

FOREX: Sterling dipped against the dollar and was last up 0.2% at $1.2596, from $1.2628 before the decision.

BONDS AND MONEY MARKETS: Rates-sensitive two-year gilt yields edged lower and were last unchanged on the day at 4.47% while traders continued to expect two more BoE rate cuts next year.

COMMENTS:

FLORIAN IELPO, HEAD OF MACRO, LOMBARD ODIER, GENEVA:

“The Bank of England will follow the ECB in 2025. They can easily afford to lower rates progressively.”

“I expect inflation to get more under control, which will open the door for BoE to recalibrate its monetary policy.”

"There should be some weakness in the UK economy then the BoE will be in a position to accelerate the pace of rate cuts.”

HUSSAIN MEHDI, DIRECTOR INVESTMENT STRATEGY, HSBC ASSET MANAGEMENT, LONDON:

"While we think risks are tilted towards more rate reductions amid signs of weakening demand for labour, the reality is inflation is proving stubborn and persistent."

"In the 'multi-polar' world of economic fragmentation, the UK economy will likely need to adjust to a new reality of higher-for-longer rates and a terminal interest rate that might not drop much below 4%."

YAEL SELFIN, CHIEF ECONOMIST, KPMG, LONDON:

"The BoE struck a cautious tone in today’s minutes, highlighting continued upside risks and uncertainty to the medium-term inflation outlook."

"The MPC's ability to ease interest rates next year will be constrained by the challenging inflation backdrop, in addition to the expected pick-up in economic activity. This will put the BoE in a unique position relative to its counterparts in Europe, particularly the ECB."

"With underlying inflationary pressures set to remain elevated over the coming year, the MPC is unlikely to shift from its gradual approach. We expect interest rates to fall by around 75 basis points next year, down to 4%."

KIRSTINE KUNDBY-NIELSEN, ANALYST, DANSKE BANK, COPENHAGEN:

"The vote split was a bit unexpected ... that's definitely what markets are reacting to. Gilt yields are a little lower and euro-sterling is rising after the statement."

"They are highlighting a gradual approach to easing monetary policy is still warranted and I think this should be interpreted as quarterly cuts. I think we'll get a cut at the meetings where we get updated projections and a press conference."

CHRIS SCICLUNA, HEAD OF ECONOMIC RESEARCH, DAIWA CAPITAL MARKETS, LONDON:

"There is a very decent case for a rate cut and the market pricing has become more hawkish. It looks like markets were too influenced by events in the U.S. economy and you can see that by what's happened in U.S. and UK bond yields in the last three weeks."

"The UK economy is behaving far more like the euro zone economy than the U.S. one. The UK economy is flatlining and that suggests the monetary policy stance is too tight."

"There was a case for a rate cut today and there is a case for several cuts next year."

"I expect a cut in Feb when the BoE updates its projections."

NEIL BIRRELL, CHIEF INVESTMENT OFFICER, PREMIER MITON INVESTORS, LONDON:

"As expected, the Bank of England left the base rate unchanged. Clearly the spectre of inflation is its major concern rather than a stagnating economy."

"Ongoing poor news out of the all-important consumer sector is a concern, but that has been parked until the new year, when we will have heard from the major retailers on the Christmas period. It's difficult to get enthused about the outlook for the economy at the moment and the path for interest rate cuts isn’t helping."

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https://www.reuters.com/world/uk/view-boe-keeps-rates-hold-policymakers-more-divided-2024-12-19/