Slower because it now sees inflation set to dip further in the short term – or even enter negative so-called deflationary territory – than it did last month due to the impact of a renewed fall in the price of oil and a rise in the value of sterling.
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“The initial reaction from markets has been a sell-off in the pound driven by the suspicion that the Bank’s cautious outlook means that first rate rise has been pushed back to at least early next year”.
Schemes have been warned against expecting a rate rise this year after just one of the Bank of England’s (BoE) Monetary Policy Committee (MPC) members voted for an increase this month.
It was the first time that the central bank has published minutes immediately after the meeting in a switch made by BoE governor and Canadian national Mark Carney that is aimed at providing more transparency.
Asked if a rate rise in 2015 was now out of the question, Mr Carney said: “I would be insane to rule anything out or to rule anything in”.
For the majority, however, a rise in interest rates wasn’t necessary.
Interest rates have been at the record low level of 0.5% since March 2009. Bank funding costs are going to play a role, as ever, as lenders weigh up how much interest they’re going to charge on new fixed-rate mortgages and floating-rate mortgages.
With the economy now recovering strongly and wages finally rising more quickly, speculation is growing about when it might start to wean Britain off low rates, mirroring the debate at the US Federal Reserve.
The Bank of England’s quarterly inflation report signalled that rates would remain on hold until early 2016 as they maintained the historic low of 0.5 per cent.
The consumer prices index, the Government’s preferred measure of inflation, is already zero – helping relieved the pressure on family finances. But when remains an open question. On the other hand, Britain’s manufacturing production increased more than expected in June.
But a recovery in the oil price has been held back after Iran agreed a deal with the US on its nuclear programme which should see sanctions lifted and the door opened for more crude to start pumping into the world’s supplies.
“Having moved in a decidedly hawkish direction over the past few months, the MPC surprised by delivering a relatively dovish Inflation Report and minutes on “super Thursday”.
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For the 24 hours to 23:00 GMT, the GBP fell 0.58% against the Dollars and closed at 1.5511, after the BoE’s minutes for its latest meeting revealed that only one MPC member was in favour of an interest rate hike.
