British central bank keeps interest rate on hold

According to the minutes, Mr McCafferty thought that there were risks “of a more significant overshoot of inflation following its return to the target”.

Interest rates have now remained at 0.5% for more than six years, after being slashed at the height of the global financial crisis, as the Bank sought to contain the recession.

Carney said inflation’s brief dip below zero was “the most striking development in the U.K.in the past year“. That was in line with its previous forecast, made in May, despite a renewed plunge in oil prices and a strengthening of sterling since then.

“It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages”. Few economists expect the BoE to tighten policy before the United States Federal Reserve, which is expected to raise rates later this year.

Andrew Wilson, EMEA CEO of Goldman Sachs Asset Management (GSAM), comments: “Whilst the single vote for a rate rise from the MPC was lower than the two or three that some economists were predicting, it offers a small signal that a rate rise is inching closer”.

As Carney spoke on Thursday, bets on a June 2016 rate hike were reined in, Jason Simpson, a UK rate strategist at Societe Generale. Carney said the outlook is “consistent” with the need for interest-rate increases – but only in due course.

In the Inflation Report, the Bank suggested that the rapid growth in jobs – which was one of the proudest boasts of Chancellor George Osborne during the recent general election campaign – appears to be petering out.

Many had expected the vote to be split seven to two, and took the decision (and the commentary surrounding it) as an indication that the committee remained less hawkish than hoped. However, losses in the sterling were kept in check after BoE Governor Mark Carney said that although the rate hike timing could not be predicted, the time for it was indeed inching closer. He emphasised on Thursday that this was his own view and that it had not changed since.

Sterling fell sharply on Thursday after just one Bank of England policymaker voted for higher interest rates at a meeting where the bank warned the strong currency and weak energy prices would keep inflation subdued well into next year.

This marks the first time the Bank of England has released MPC minutes alongside its rates decision.

Despite subdued inflationary pressures, sterling has been underpinned in recent weeks by robust economic data, with British consumer demand holding up, wages rising and the pace of growth accelerating in the second quarter.

“This would have a mixed impact on UK businesses with those who import likely to reap the benefits from a rally in the pound while exporters may find the opposite to be true as products become more expensive for those across Europe and the US”.