The ECB follows the holding interest rates of the Federal Reserve and the Bank of England

The Bank of England and the European Central Bank have spent much of 2023 following the Fed’s moves, raising borrowing costs but stopping short of their US counterparts. The question now is how their paths might diverge in 2024.

Like the Fed, the ECB has given some dovish signals. The bank lowered its inflation forecasts for this year and next, expecting the rate to fall very close to its target in 2024.

The Bank of England appears to be the central bank most likely to raise interest rates again, or keep interest rates high for longer. Three Bank of England policymakers had favored a quarter-point increase this month, and the interest rate-setting committee said risks to consumer prices remained to the upside.

The bank said in a statement that policy would need to be restrictive “for an extended period of time” to bring inflation back on target. “We still have a long way to go,” Bank of England Governor Andrew Bailey said in a letter to the UK Treasury published with the interest rate decision.

The US economy appears stronger than the European economy. Data on Wednesday showed that UK production unexpectedly contracted in October. The German economy – the largest among the 20 countries that use the euro – contracted in the third quarter, while the French economy expanded by just 0.1%. By contrast, the US economy grew at its fastest pace in nearly two years in the July-September period.

Inflation rates are falling rapidly in all three economies, but to varying degrees. In the United Kingdom, growth reached 4.6% in October, much higher than the US rate of 3.1%. In the euro area, the percentage is 2.9%. The Federal Reserve, European Central Bank and Bank of England share a similar goal of keeping inflation at around 2%.

In Wednesday’s decision, the Fed kept its options open. Chairman Jerome Powell said officials “believe our interest rate will likely be at or near its peak during this tightening cycle.” His forecast calls for interest rate cuts of three-quarters of a point next year. Markets are pricing in the first Fed cut around March.

Write to Brian Swint at [email protected]