Brenda Kelly, lead analyst at London Capital Group told What Investment that the Bank of England has revised downwards its near term growth expectations for the economy.
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Plunging oil prices – touching below 30 USA dollars for the first time in 12 years – have added to the market woes and will keep a lid on already low United Kingdom inflation, meaning there is little pressure on the Bank to raise borrowing costs.
Bank of England officials said the near-term outlook for both United Kingdom economic growth and inflation has weakened and that recent market volatility highlights the downside risks to the world economy.
A number of economists have pushed their expectations of the first United Kingdom interest rate rise from the end of 2016 into the start of 2017.
He has said previously that a decision on when to raise rates was likely to come into “sharper relief” around now.
“Although the most recent declines in oil prices will depress global inflation in the near term… these conditions should in time provide net support to spending in the United Kingdom and its major trading partners”, the Bank said in minutes summing up the discussion at the rate-setting meeting.
Earlier this month, Treasury chief George Osborne, in a downbeat assessment that contrasted with his sunnier tone in late 2015, warned that the British economy faced “a unsafe cocktail of new threats” this year, including turmoil in Chinese stock markets and political unrest in the Middle East.
“We don’t know when the Bank of England will change the base rate, but we do know preparing early and helping homeowners understand their options is the first step in helping Britain get #ReadyForRateRise”.
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. The actual path that Bank Rate will follow over the next few years will depend on the economic circumstances”.
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Once again, a single member of the nine-person MPC voted for a 0.25 percentage point rate hike, and eight voted to keep the rate where it is for now. Concern about an upcoming referendum on Britain’s membership of the European Union have also weighed on sterling.
