Interest rates – no change until 2017 according to a few commentators

Fed Chair Janet Yellen reminded markets Wednesday night that a December hike was still a “live possibility” for the central bank.

It came as the Bank’s nine member Monetary Policy Committee voted eight to one to freeze its base rate at 0.5%. The BoE forecast that near-zero inflation would pick up only slowly, trimmed its expectation for economic growth for this year and next, and highlighted risks from emerging markets. However, inflation is expected to start rising more quickly in the medium term than previously forecast by the bank, and hit 2.1 per cent by the last quarter of 2017. “There remain downside risks to this outlook, including that of a more abrupt slowdown in emerging economies”, says the MPC report.

A few economists believe inflation won’t approach two per cent until 2017 and that could delay any rate hike for more than a year.

There is a huge amount of speculation in financial markets and much of the betting will be tied to a boost or fall in sterling.

Bank of England chief Mark Carney has said Britons should prepare for an interest rate increase in 2016, following the Bank’s decision to once again keep rates at record lows yesterday.

The members MPC argue the external factors may disturb the economic growth of the country especially the poor performance of emerging economies.

A monumental 6% rally in the GBP/EUR exchange rate over the past month was destroyed within an hour, as the BoE Governor Mark Carney delivered a cautious inflation report, which indicated United Kingdom interest rates will remain lower for longer.

Carney left Britain’s benchmark rate at 0.5 per cent on Thursday, the same level it’s been for six years.

Interest rates may stay at their rock bottom levels all the way into 2017, the Bank of England has signalled. But when remains an open question: the minutes to the meeting showed policymakers found the near-term outlook for inflation was weaker than when last assessed in August, due in part to lower oil prices.

The Bank maintained, as they have done with each announcement regarding interest rates, that when they eventually do start to increase, they will do so gradually.

In another sign that it was relaxed about keeping its stimulus for the economy in place, the Bank said it would keep on reinvesting the proceeds from the 375 billion pounds ($571 billion) of government bonds that it bought during the crisis until it had raised interest rates to around 2 percent.

The MPC predicted inflation would slightly exceed the 2% target in two years and then rise a little further above it, reflecting modest excess demand.

The institution’s rate-setting Monetary Policy Committee voted by a majority of 8-1 in favour of leaving rates on hold. Since this projection assumes that bank rate follows the path implied by market interest rates, the MPC appears to anticipate tightening policy earlier than Q4 2016, the markets’ current expectation.