BoE benchmark interest rate unchanged at 0.5 pct

The latest inflation report from the Bank is also out – it’s the quarterly update in which the BoE offers its view of the domestic and global economy, and the prospects for the years ahead.

As a result of the uncertain global outlook, the bank cuts its growth forecast for the United Kingdom from 2.8 per cent to 2.7 per cent this year, and from 2.7 per cent to 2.5 per cent in 2016.

The other Monetary Policy Committee members opted to keep them at a record-low 0.5 percent, where they have been since March 2009.

However, it would heap further misery on savers, whose investments already receive a very low rate of return.

In contrast to the BoE, Federal Reserve chief Janet Yellen on Wednesday left on the table the possibility of an increase to USA interest rates in December.

“That meant the BoE wouldn’t necessarily be close behind the USA central bank when it made a decision to raise rates”.

Its forecasts suggest that even if rates do not rise until 2017, and then only to 1 per cent, inflation would still only just breach its target level.

Sterling fell more than a cent against the dollar and government bond yields dropped sharply. “Many emerging-market economies have slowed markedly this year, and the committee has downgraded its assessment of their medium-term growth prospects”. There was little reaction to British data on Friday which showed manufacturing output rising in September at the fastest pace in more than a year while the trade deficit narrowed more than expected. “Isn’t it better that the Bank of England give the public and the markets a sense of what our best collective judgment is of what’s going to happen in the economy than to catch people by surprise?”, Shafik said.

Despite speculation that Kristin Forbes or Martin Weale would advocate to raise rates to 0.75%, the minutes revealed her colleague Ian McCafferty was the only MPC to go against the grain.

“The timing of the first and subsequent rate rises is therefore critical to market sentiment”. The MPC forecast that inflation should hit 2.1% in two years based on current interest rate forecasts’. Therefore, a rate hike is necessary to control the inflationary pressure.

There was also an embarrassment buried away in the material published today as the bank’s Independent Evaluation Office found its forecasts for unemployment had “statistically significant evidence of bias”, with its projection of the rate typically too high. The solid currency hurts exports and lowers import prices, which squash inflation lower and make it harder for the BOE to achieve its target.

The MPC said it is unlikely to rise above 1% until the second half of next year due to weak global commodity prices and import costs as well as the dampening effect of sterling.

At the committee’s meeting, the majority of MPC members judged it appropriate to leave the stance of monetary policy “unchanged”. It added that it expects the growth rate for the third quarter eventually to revised up to 0.6% from 0.5%.