The timing of any rate rise: While previously market watchers thought there would be no interest rate rise from the Bank of England before 2017, expectations have now been moved to summer next year, off the back of better-than-expected market data.
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Economic forecasters at the National Institute of Economic and Social Research (NIESR) believe the third quarter softening in United Kingdom growth was “temporary” and predicts a rebound in the final three months of 2015.
The UK’s central bank lowered its economic growth forecasts, sending signals that it would be happy to keep rates lower for longer.
United Kingdom government bonds, which benefit from lower interest rates, rose slightly.
The Bank also thinks a weaker global economy will mean lower global commodity prices, which will help depress United Kingdom inflation, which was at minus 0.1 per cent in September, well below the Bank of England’s official target of 2 per cent.
The pound fell a cent against the euro and the dollar, at just over 1.40 and just under 1.53 respectively following the inflation forecast.
The Bank also spelled out for the first time that it was unlikely to unwind its £375bn stockpile of asset purchases until interest rates had risen to 2pc, suggesting policymakers will opt to reinvest gilt purchases until the end of the decade.
At the committee’s meeting, the majority of MPC members judged it appropriate to leave the stance of monetary policy “unchanged”.
Ahead of Thursday´s decision there had been speculation in markets that either Martin Weale or Kristin Forbes might have joined Ian McCafferty in calling for an immediate interest rate hike.
It also described the approximately 1% reading on “core” inflation as subdued.
The finding is particularly awkward given that the governor hinged his controversial new policy, forward guidance, on this very statistic.
“The outlook for global growth has weakened since the August Inflation Report”, the statement said. Indeed, “there remained downside risks to this outlook, including that of a more abrupt slowdown in emerging economies”, the BoE said. Carney has said a decision on when to raise rates would come into “sharper relief” around the turn of the year, but in his most recent media interview the phrase did not appear.
Rates will have to go up to keep inflation on target, Carney said.
City analysts will be scouring the latest inflation report and minutes from the Bank of England today for any indications as to how soon the Bank might raise interest rates.
The Bank of England admit that this growth has stalled recently, but are projecting a hike in growth in the middle of next year.
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The slow pick-up in inflation comes despite relatively robust growth forecasts. It sees price growth at 2.1 per cent in the fourth quarter of 2017 and about 2.2 per cent a year later, above the 2 per cent target.
