“We expect interest rates will finally move up in 2016, but this is not a stone dead certainty”.
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Inflation was below zero for the second month during October and recent data on the economy remains mixed giving the BOE some room to maintain its policy setting for the time being, said London analysts.
Ian McCafferty has been the sole dissenter since August, seeking a 25 basis points rate hike, suggesting that policymakers are in no hurry to tighten monetary policy. The Federal Reserve is widely expected to raise USA interest rates for the first time since 2007 next week, giving the Bank a chance to see how the global economy and markets react before it has to make up its mind on when to follow suit.
Markets were more influenced by offshore factors, with the won down half a per cent at 1,173.2 to the dollar while December futures on three-year treasury bonds ticked 0.03 basis points lower at 109.30 as of 0107 GMT.
The BoE also voted to keep the Asset Purchase Target unchanged at 375b, also as expected. The Organization of the Petroleum Exporting Countries (OPEC) did not announce a production quota reduction, and non OPEC members fear that letting up will result in losing further market share to the organization’s members who even though they are hurting continue to pump at record levels.
Oil prices rebounded, with WTI futures up 0.6% to $37.40 and Brent, the global benchmark, gaining 1% to $ 40.49. These developments may “increase the likelihood that headline inflation rates would remain subdued”, according to the minutes.
The bank is also concerned about United Kingdom banks’ exposure to emerging market economies, which may suffer capital flight after the Fed decision.
“Raising rates this year will, in my view, serve to reduce monetary policy uncertainty and to keep the economy on track for sustained growth with price stability”, Mr Harker was reported as saying.
The minutes of the latest MPC meeting give a bit of an indication into their thinking: Most notably, they say that pay growth appears to have plateaued.
Thursday’s policy summary said the bank intends to bring inflation back to its target “without an overshoot once persistent disinflationary forces ultimately wane”, echoing a line from its November statement.
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Retail sales increased for four months through October, and vehicle sales in the domestic market jumped 16.3 percent in November from a year earlier. He thought the “risks around domestic cost growth were to the upside and were sufficient to justify an immediate increase”, the minutes showed.
