BoE puts off rate rise as dissenter abandons position

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BoE puts off rate rise as dissenter abandons position

The Bank of England has sounded a note of caution as its monetary policy committee (MPC) unanimously decided not to increase interest rates in the face of subdued global growth and market falls.

The decision - which saw the one remaining MPC policymaker previously calling for a rate hike abandon this position - came as the Bank warned that global growth had fallen back further in the past three months.

It attributed this to a continuing slowdown in emerging economies, slower-than-expected growth in the US economy and “considerable falls in the prices of risky assets and another significant fall in oil prices”.

Markets suggest rates will not rise until at least 2018.

This year has been marked by market instability, with investors alarmed by the precipitous fall in the price of oil and signs of a slowdown in the Chinese economy.

The Bank, which targets a 2 per cent level of inflation, warned that persistent deflationary pressures could continue to push back a rate rise.

“The scale of recent commodity price falls means that CPI inflation is likely to remain below 1 per cent until the end of the year,” it said.

However, it added: “As the drags from energy and other imported goods unwind, however, domestic cost pressures are projected to build up sufficiently such that, conditioned on the path for bank rate implied by market interest rates, CPI inflation is likely to exceed the 2 per cent target slightly at the two-year point [Q1 2018] and then rise further above it.”

It added some positive notes about the UK economy, however, noting that its domestic private sector “remains resilient”, adding: “Consumer confidence is robust, supported by a pickup in real income growth, and overall investment intentions continue to be firm, although a sharp retrenchment in capital spending in the oil and gas sector is under way.”

The Bank forecast Britain’s economy would grow 2.2 percent this year and 2.3 percent in 2017, down from forecasts of 2.5 percent and 2.6 percent in November.

Ruth Miller, UK economist for Capital Economics said: “Given that the MPC has not sent any signals that it is even thinking about preparing the ground for a rate rise, the chance of a rate hike in the first half of this year looks slim (our previous forecast was for a rise in May).

“Nonetheless, we still think that markets have gone too far in not expecting a rate rise until 2018. We still think that a rate rise this year is likely, and now expect the MPC to hike in November 2016.”