Bank of England keeps interest rate at 0.5 per cent
As part of its much-anticipated “Super Thursday” raft of announcements, the Bank of England has voted to keep interest rates at the record low of 0.5 per cent.
The UK’s bond-buying programme is also set to remain frozen at £375 billion.
Ian McCafferty was the only member of the nine-strong Monetary Policy Committee who voted in favour of higher interest rates. This is the 78th consecutive month that the bank has chosen to keep interest rates low. Rates were first cut in a bid to limit the effects of the recession, but the economy has been judged too fragile to raise them ever since.
Mr McCafferty has been pressing to raise interest rates since the middle of 2014, but was normally supported by Martin Weale. However, he was in a minority of one on this occasion.
The minutes of the meeting read: “The near-term outlook for inflation is muted. The falls in energy prices of the past few months will continue to bear down on inflation at least until the middle of next year.”
The decision was taken despite many economists’ belief that the bank would use the occasion to signal an end to low interest and cheap borrowing.
It is now believed that interest rates will remain at their present level for at least two more months, before rising to the committee’s target of two per cent at the end of the current two-year policy period. Bank of England governor Mark Carney said that the interest rate was likely to change “at the turn of the year.”
In a statement, the Monetary Policy Committee said: “Private domestic demand growth in the United Kingdom is expected to remain robust. Household spending has been supported by the boost to real incomes from lower food and energy prices. Wage growth has picked up as the labour market has tightened and productivity has strengthened.”
It appears that concerns about the global economy are behind the decision to hold interest rates. Factors include a slowdown in China’s finances, the ongoing crisis in Greece and the abnormally low price of oil.
The committee’s report also challenged chancellor George Osborne’s claims about increasing job creation, which it suggested was beginning to tail off.
In the wake of the announcements, sterling was down by 0.6 per cent against the dollar at $1.5509, and the euro rose by 0.7 per cent to 70.38 pence.