Only one BoE policymaker, Ian McCafferty, voted to raise interest rates this month, as most economists had expected.
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Low inflation and an uncertain global outlook have prompted the BoE to reconsider raising interest rates which have been stuck at 0.5% since 2009. The other way would be via the press conference and a few more hawkish comments from the Bank of England Governor Carney.
What has come into sharper relief is not a rate rise but the fact that the cost of borrowing is unlikely to go up any time soon – at least not if the world economy pans out in the way the Bank now expects.
Separately, New York Fed President William Dudley said he would “completely agree” with Yellen that December is a “live possibility” for a rate lift-off.
Bank of England chief Mark Carney has said Britons should prepare for an interest rate increase in 2016, following the Bank’s decision to once again keep rates at record lows yesterday. This follows a summer of market turmoil amid concerns over China’s slowing economy.
Growth forecasts were also mixed, with the 2015 and 2016 growth forecasts revised lower, and the 2017 nudged up, with a new, 2018 forecast (+2.5%) introduced.
However a signal has been provided that the market’s expectations for future rate rises are too far away. Sterling fell to $1.5156, down 0.35 per cent on the day, while the euro was up 0.2 per cent at 71.69 pence.
“Many emerging market economies have slowed markedly and the committee has downgraded its assessment of their medium-term growth prospects”.
Analysts now say they expect a rate rise from the Bank of England in the middle of next year, or in late Spring (around May perhaps) at the earliest.
The BOE repeated its argument that much of the deviation of inflation from the goal is due to cheaper energy and a stronger pound.
The Bank also published the latest letter from Mr Carney to Chancellor George Osborne, explaining why inflation is more than 1% off its 2% target.
“Oil prices have fallen further over the past three months and in September they were around half the level of a year earlier”. The MPC forecast that inflation should hit 2.1% in two years based on current interest rate forecasts’.
The challenge for the BOE’s Monetary Policy Committee (MPC) is still understanding how the opposing forces of domestically generated strength and imported weakness will influence United Kingdom economic growth and inflation, at a time when United Kingdom headline inflation is just -0.1%.
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This week’s economic surveys suggested the United Kingdom economy held up better in October, pointing to growth edging back up to 0.6% in the fourth quarter, or even 0.7% if retailers enjoy a bumper Christmas, according to IHS Global economist Howard Archer. Ross Walker, senior United Kingdom economist at Royal Bank of ScotlandThe RBS forecast remains for the first bank rate hike to come in August 2016.
