The Bank of England’s Monetary Policy Committee has voted to maintain bank rate at 0.5 per cent, along with maintaining quantitative easing asset purchases at £375bn.
The bank rate has been held at this record low since 5 March 2009, while the last change in the asset purchase programme was an increase of £50bn on 5 July 2012. No further statement was given and meeting minutes will be published on 22 October.
Private client bank Brown Shipley stated that the Bank of England will lose independence for setting interest rates by 2025, due to a chain of events and external pressures driven by the fundamental issue of interest rates currently being mispriced and too low for too long.
David Page, senior economist at Axa Investment Managers, said that the rate hold was expected, but risks have shifted.
“Despite today’s announcement being in line with our expectation, there have been a number of developments to the broader economic outlook in the UK that are likely to influence monetary policy over the coming quarters.”
Mr Page noted that employment growth has slowed, the economic outlook has softened and there is also a “softer” inflation outlook.
“We consider more recent developments to add to downside risks to the UK outlook.
“Our central forecast remains for solid expansion, in line with the IMF’s new outlook for the UK of 2.7 per cent, which we see gradually tightening the labour market further and expect faster wage growth to emerge across the important January – April wage round next year.
“This is likely to see unit labour costs begin to rise and encourage the committee to embark on the first tentative increases in what we expect to be a very gradual tightening cycle. We forecast bank rate to close 2015 at 1 per cent.”
Kevin Doran, Brown Shipley’s chief investment officer, said: “When any commodity is mispriced, which I believe the UK interest rates are, it leads to unintended consequences which results in greater market interference; in the BoE’s case via macroprudential policy.
“With the continued failure to set rates correctly I expect to see even greater interference with economic decisions.
“However, this will create a ‘democratic deficit’ as unelected members of the MPC will have an even greater influence on peoples’ lives.”
peter.walker@ft.com
