MPC votes unanimously for no change
Bank downgrades growth and stalls rate rise
It suggested that interest rates were unlikely to rise this year and maybe not even next as inflation consumer price inflation is forecast to stay below 1% this year, longer than previously thought, and to rise to just over 2% in two years’ time.
Governor Mark Carney said that the UK economy remains robust, although it there is still spare capacity, and warned that he believes households and companies remain too indebted.
The MPC voted 9-0 to maintain rates after Ian McCafferty, who had previously backed a rate rise, changed his position.
Sharp falls in oil prices and stock markets, and slowing growth in emerging economies, were given as reasons for today’s decision.
In its quarterly report, the Bank said: “Global growth has fallen back further over the past three months as emerging economies have generally continued to slow and as the U.S. economy has grown less than expected.”
James Sproule, Chief Economist at the Institute of Directors, said: “It is unsurprising that the Bank of England has decided to hold interest rates once again given the uncertainties in the global market which have dominated 2016. Nevertheless, the IoD is concerned that monetary policy in the UK is still overly accommodative and could be stoking debt-fuelled asset bubbles.
“Low inflation has clearly tied the MPC’s hands. However, there remains little reason to be concerned that the near-zero rate of inflation will be anything but good news for the UK. The reason prices are not shifting is because global oil prices have collapsed. This is completely different to if low prices were being driven by a lack of consumer confidence.
“While it is important that rate-setters remain vigilant about what global uncertainty means here at home, as the year progresses, and if stability returns, the Bank should begin to provide greater clarity about the precise timing of the first interest rate rise. The trigger for normalising rates remains economic strength rather than inflationary concerns.”
Mr Carney played down the likelihood that the record low interest rate could be CUT amid growing expectations that inflation will remain below 1% this year.
The rate has been at 0.5% for almost seven years and there had been expectations of a rise until the global economy turned suddenly gloomy.
Market commentators have been suggesting there is greater probability of an interest rate cut than an increase.
But Bank governor Mark Carney was anxious to dispel that likelihood in a press conference following today’s monthly meeting of the Bank’s monetary policy committee.
“In a situation where we have had the strongest recovery in the world, and people are steadily finding work – in that environment it is viable for households and businesses to expect that rates are going to rise,” he said.