Bank of England keeps interest rates steady

The Bank of England (BoE), Britain’s central bank, maintained its benchmark interest rate at record low of 0.5 percent, BoE announced on Thursday.

Ian McCafferty, one of four external members on the nine-person Monetary Policy Committee, voted to increase rates to 0.75 per cent while other policymakers appeared no closer to raising rates.

The Bank also said British economic growth around the turn of the year would probably be a bit slower than it previously forecast, judging from a recent downbeat tone among businesses, but that the fall in oil prices could boost growth in future.

Today’s MPC meeting was the first since the US Federal Reserve chose to raise interest rates in December after its economy expanded strongly previous year.

The Bank said: “Recent volatility in financial markets has underlined the downside risks to global growth, primarily emanating from emerging markets”.

Investors have pushed their expectations for a first BoE rate hike further back into 2017, and sterling was trading near a 5 1/2-year low against the dollar and hit a 11-month trough against the euro earlier on Thursday.

The global risks are building. He believed rates should rise 0.5 per cent because “the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term than was embodied in the Committee’s collective November projections”.

Nick Dixon, Investment Director at Aegon UK, added: “A slowing economy and nervous stock market will have kicked the prospect of any major rate rise into late 2016 at the earliest”.

Martin Beck, senior economic advisor to the EY ITEM Club, said: ‘The UK economy’s exposure to the cloudy global outlook and a significantly more depressed picture for core inflation on this side of the Atlantic kept the Committee’s hand steady.

The Bank is tasked with maintaining inflation at two per cent, but the most recent reading showed prices have increased by just 0.1 per cent year on year.

In the last meeting there was a single dissenter voting for an immediate rate hike, the minutes published tomorrow alongside the statement could show that dissenter coming back into rate holding camp fold as the economic situation has changed. Governor Mark Carney reassured markets by calling the deflation threat transitory, but there has not been a strong signal inflation will set in, to be followed by a rate hike.

The MPC also noted the fall in the value of the pound, which was partly attributed to actions by the European Central Bank.

Mould says rates are likely to persist at their record low for the rest of this year.