Bank of England votes overwhelmingly to keep interest rates on hold

Mark Carney

Economists had not been expecting the Bank of England to raise interest rates this month. Instead, they are watching for indications of when the first rate rise since 2009 might come.

In what has been dubbed Super Thursday, the BoE has released its quarterly inflation report and minutes from its previous policy meeting as well as the latest decision on interest rates.

The minutes revealed that for the third month running, Ian McCafferty was the only member of the Monetary Policy Committee (MPC) to vote for a rise in interest rates.

In its quarterly inflation report, the Bank of England said “the outlook for global growth has weakened since August”. It blamed emerging market economies for that weakness, saying growth in those regions had “slowed markedly”.

Those global factors have made the Bank of England cautious about the outlook for inflation.
While the Bank expects inflation to to rise above its 2% target in two years, it says that risks “lie slightly to the downside” during that time period. In other words, inflation may not rise as quickly as the Bank forecasts.

Commenting on the rate decision, David Kern, Chief Economist at the British Chambers of Commerce, said: “The decision to keep interest rates and the level of QE on hold was unsurprising given the current economic backdrop. While earnings are edging up slowly, they are not increasing at a pace that should cause concern in the near future.

“It is also reassuring that, as in previous months, only one member of the committee voted in favour of an immediate increase in rates. Since the last meeting, inflation has fallen into negative territory and it is likely to remain below the 2% official target until well into 2017.

“Although the UK recovery remains on course it is facing headwinds. GDP growth slowed to 0.5% in the third quarter, exporters are facing challenges, and while services firms are growing, the manufacturing and construction sectors recorded declines in the third quarter.

“British businesses need a prolonged period of stability and the present low level of interest rates should be maintained until well into 2016.”

Barry Naisbitt, Chief Economist at Santander added: “It was no surprise that the Monetary Policy Committee (MPC) once again decided to hold the Bank Rate today. With inflation just slightly negative in September and uncertainties about global economic prospects having been a feature of the last few months, the MPC was unlikely to change the decision taken last month.

“While the positive news from the activity indicators reported this week hints that the slowing in quarterly GDP growth seen in the third quarter – to 0.5 per cent from 0.7 per cent in the second quarter – might reverse, inflation remains well below the 2 per cent target rate. This month the Inflation Report probably takes centre stage and it provides the Bank of England with an opportunity to set out the extent to which it sees any changes to the prospects for UK growth and inflation and also the global and domestic uncertainties that the economy faces.”