UK interest rate steadies

Amid concerns over low inflation and slowing growth in Asia, the Bank of England’s policymakers voted 8-1 to leave the rate at 0.5 percent for a 78th consecutive month and opted not to pump more money into the economy.

Dubbed “Super Thursday” by economists, the decision was accompanied by the minutes of the meeting and the bank’s Quarterly Inflation Report for August.

The Bank stressed how a recent strengthening of the pound and a renewed fall in oil prices would push down inflation until at least the middle of next year and said the impact of the rise in sterling could persist even longer.

“In light of the reduction in oil prices and appreciation of sterling over the past three months, it appeared that the increase in inflation over the following year would be more gradual than had previously been supposed”, according to the MPC minutes.

Some members of the MPC saw a risk that inflation could pick up more strongly than the central forecast, the BoE said.

The BoE raised its forecast for British economic growth this year to 2.8 per cent from a previous estimate of 2.5 per cent.

“Looking at the inflation report, the signal is that interest rates will rise to 0.75% in Q2 of 2016, hit 1% by the end of 2016 and reach 1.5% by 2017″.

The euro surged against sterling yesterday after the Bank of England unexpectedly signalled that a possible rise in interest rates will be later rather than sooner.

But that will all change at midday today when the rate announcement will be coupled with the minutes, which outline how the nine MPC members voted and the views expressed on the committee.

“That there was only one dissenter was a little surprising, while there was no sense that the majority of the committee are remotely close to voting for higher rates”, said Andrew Goodwin of Oxford Economics.

The pound was on the front foot last night as investors bet on an early rise in interest rates despite signs the economy is slowing.

‘Ahead of time, expectations were that he would be joined by Martin Weale, and possibly (very outside chance) David Miles, ‘ said James Knightley, economist at ING.

INTEREST rates are unlikely to rise until next year with the prospect of deflation looming.

Bank of England governor Mark Carney, speaking after the data was released, said a rate rise “is drawing closer” but adding that the “path is more important than the timing of the first increase”.