The Bank of England’s Monetary Policy Committee (MPC) has once again voted 8-1 to keep UK interest rates at 0.5%, where they have remained for the past six-and-a-half years.
For the third consecutive month, Ian McCafferty was the only MPC member to vote for an increase. Furthermore, statements made by the Bank in its quarterly inflation report strongly indicate that there is no prospect of an increase in the foreseeable future.
The report states that ‘the outlook for global growth has weakened since August’ due to slowing growth in emerging markets, reducing the likelihood of an inflation rate that could prompt the MPC to raise interest rates. It suggests that lower costs for energy, food and other imports are likely to keep consumer price inflation below 1% until the second half of 2016.
In the MPC minutes, the committee said that since it released its August Inflation Report many emerging market economies have slowed markedly, which has led the Bank to revise downwards its assessment of their medium-term growth prospects.
‘There remain downside risks to this outlook, including that of a more abrupt slowdown in emerging economies,’ the MPC said. ‘CPI inflation is nonetheless expected to remain below 1% until the second half of next year, reflecting the continuing drag from commodity and other imported goods prices.
‘Beyond that, the dampening influence of sterling’s past appreciation on inflation is expected to be persistent, diminishing only slowly over the MPC’s forecast period. In this context, the MPC judges it appropriate to return inflation to the target in around two years.
‘All members agree that, given the likely persistence of the headwinds weighing on the economy, when the Bank rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles.’
Howard Archer, chief UK economist at IHS Global Insight said: ‘The first interest rate hike from 0.50% to 0.75% is still most likely to happen in May 2016 – but the risks now seem to be that the increase could be later than this rather than before it. As things currently stand, an interest rate hike in the first quarter of 2016 looks unlikely.’