BoE splits on rate hold decision

At a press conference, he said he stuck to his personal view that the decision about when to start raising rates from 0.5 per cent now was likely to come into sharper relief at the turn of the year.

“Rates look the more attractive venue, where despite hawkish policy signals, markets still price a May 2016 hike and just 30 percent probability it occurs this year”.

The Bank of England base interest rate affects is set by its Monetary Policy Committee and affects interest rates offered by banks, building societies and other financial institutions.

Forecasts in the central bank’s inflation report – published yesterday on what was dubbed “Super Thursday” on Threadneedle Street – suggested rates would not rise until next spring.

“Short term interest rates have averaged around 4.5% since around the Bank’s inception three centuries ago”, said Carney in a speech on July 16.

The Bank of England is the only one of the world’s 10 leading central banks that still publishes its rate decision without any accompanying explanation.

Those expectations are for the BOE to begin lifting its benchmark short-term rate from 0.5%, where it has been pegged since early 2009, in the first half of 2016.

Ian McCafferty became the first MPC member to break from the rest of the pack for the first time this year by voting to raise rates by 25 basis points, saying he believed the risks to inflation rising – due to increased consumer spending and confidence – were strong enough to act now.

The delay seems to be reflecting lower forecast inflation as a result of the energy prices renewed falls over the last quarter.

MPC members voted 8-1 to maintain the record low interest rates, the first time that any member of the committee has voted against the general position for many months.

He said the economic recovery was being driven by greater employment and higher wages, dismissing any suggestion it was being built on household credit.

‘This is understandable and is another welcome sign of the economy returning to normal. Despite inflation sitting at zero, at least two of the Bank’s nine rate-setters are expected to have decided that it is time to start weaning the economy off crisis-era low rates after two years of strong growth.

The data was met by a muted response in the UK market, with the FTSE 100 index 0.04 per cent below its opening level of 6750 by early afternoon trading, erasing a minor spike to 6763 at lunchtime.

‘Those analysts who predicted a rate rise this year may be on the brink of having to rip up their predictions, ‘ said Lucy O’Carroll, chief economist at Aberdeen Asset Management.