Monthly Archives: February 2016

Bank of England holds rates at 0.5%

 

The Bank of England’s Monetary Policy Committee has voted unanimously to keep the base rate at 0.5 per cent, marking nearly seven years of unchanged rates.

The committee voted 9-0 to keep base rates at their current low levels. At the last meeting just one member, Ian McCafferty, voted for a rise, saying he expected inflation to increase faster than the committee’s expectations.

Markets are increasingly pessimistic of a rate rise this year and are now pricing in a higher probability of a rate cut this year than a rise.

“Looking forward, the plunging oil price has taken over from the global financial crisis in discouraging the Bank of England from raising interest rates. The deflationary effect of cheaper fuel and energy is likely to keep policy makers hiding in their dovecotes for some time to come,” says Laith Khalaf, senior analyst at Hargreaves Lansdown.

“At the moment UK monetary policy is being held in check by two opposing forces; low inflation on the one hand, and a growing economy on the other. Should the economy falter, the scales will start to tip towards loosening monetary policy once again, either through an interest rate cut, or more quantitative easing.”

Governor Mark Carney recently made a speech highlighting that UK growth and inflation had been more sluggish than expecting, prompting many to assume any interest rate rise had been pushed out to late 2016.

UK interest rates have been left unchanged again at 0.5% by the Bank of England’s rate-setters.

Eight of the nine rate-setters on the Monetary Policy Committee (MPC) voted for no change, with one voting for a rise.

The Bank rate has been at the record low of 0.5% since March 2009.

A number of economists have been pushing their expectations of the first UK interest rate rise from the end of 2016 into the start of 2017.

The Bank said: “All members agreed that, given the likely persistence of the headwinds weighing on the economy, when Bank rate does begin to rise, it is expected to do so only gradually and to a level lower than in recent cycles.

“This guidance is an expectation, not a promise.”

Ian McCafferty, one of four external members of the MPC, has been voting for a rate rise for several months and had the same view at the latest meeting.