Bank of England leaves door open for December interest rate hike

The Bank of England has kept borrowing cost increases on the table for the final month of the year, while officials point to mounting labour market strains across the United Kingdom. Bank of England Deputy Governor Clare Lombardelli stated during an interview with The Guardian that she would not rule out an interest rate hike during the upcoming December meeting.

At the same time, Lombardelli adopted a cautious stance regarding immediate policy tightening. She indicated that she did not yet possess sufficient information to commit fully, balancing the risk of further monetary action against visible signs of economic deceleration. FXStreet noted that Lombardelli's 6/10 FXS Speechtracker score sits notably below the 7.2/10 historic average, signalling a softer tone as the Deputy Governor highlights a “low-gear economy” and a clear fall-off in hiring.

Media additions

Labour Market Strains and the Low-Gear Economy

Behind the central bank's deliberations lies a structural cooling in domestic employment conditions. Lombardelli described the situation as an “economy in low gear”: seeing a real fall-off in hiring in labour market, but not seeing much in the way of redundancies. Companies are trying to retain their existing staff but are freezing new recruitment while awaiting greater certainty, as explained by the central bank representative.

According to Ua, the sharpest decline in vacancies, she said, is visible in hospitality and retail, where young people often gain their first work experience. In the United Kingdom, young people are suffering the most from the slowdown in hiring, as employers refrain from recruiting new staff amid economic uncertainty. Furthermore, employers surveyed by the Bank of England also consider hiring a young worker riskier than before.

The unemployment rate in the United Kingdom rose to 4.7% this year, according to Ua, while youth unemployment increased faster and reached its highest level outside the COVID-19 pandemic period since 2015. the number of young people who are not in education, employment or training approached one million.

Macroeconomic Pressures and External Shocks

Global events continue to complicate domestic policymaking. According to her, the conflict in the Middle East caused energy prices to rise and worsened economic expectations, contributing to an increase in youth unemployment according to UA.News.

These external shocks feed directly into domestic inflationary pressures, complicating the central bank's path forward. At the same time, she warned that rising unemployment would not necessarily ease inflationary pressure: employers may retain the workers they need and open only vacancies that are difficult to fill.

Lombardelli was among the majority on the Bank of England’s Monetary Policy Committee that supported raising the base rate from 3.75% to 4%. She did not rule out another increase of 0.25 percentage points as early as the December meeting.

Metric / Indicator	Reported Figure	Context / Source Attribution
Base Interest Rate (Previous adjustment)	4%	Supported by Monetary Policy Committee majority (UA.News)
United Kingdom Unemployment Rate	4.7%	Recorded for the current year (UA.News)
Young People Not in Education, Employment or Training	Approaching one million	Reached highest level outside COVID-19 pandemic since 2015 (UA.News)
Speechtracker Score for Deputy Governor	6/10	Sits below the 7.2/10 historic average (FXStreet)

Market Reaction and Policy Outlook

Financial markets registered muted reactions following the publication of Lombardelli's remarks. No major reaction seen in the British Pound (GBP), following release of BoE Lombardelli's comments. As of writing, GBP/USD is marginally higher to near 1.3452.

For GBP, this mix of weaker labour momentum and an open door to further tightening suggests limited upside, with markets likely to fade aggressive hike bets while respecting that the Bank of England is not yet ready to declare the tightening cycle over.

Future policy decisions will hinge heavily on evolving data streams. Lombardelli stressed that the decision would depend on the course of the conflict, energy prices and new economic data.