Bank of England ends 2015 with interest rates on hold

The BoE’s Monetary Policy Committee (Mpercent) kept its key rate at 0.5 percent, where it has stood since March 2009, it said in minutes of the latest monthly gathering.

Last month, the central bank noted that falling commodity prices and an increase in the pound were dampening prospects for inflation.

The minutes of the Bank’s latest policy meeting showed it was in no hurry to match an expected rate hike by the U.S. Federal Reserve next week as there was “no mechanical link” between the Bank’s thinking and that of other central banks.

The Federal Open Market Committee will hold its last meeting of the year next week and is widely expected to raise the U.S. benchmark federal funds rate, which has been held near zero since late 2008.

The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 1.87 per cent, after sliding to 1.82 per cent. The 2 per cent security due in September 2025 rose 0.09, or 90 pence per £1000 face amount, to 101.19.

“The odds still clearly favour United Kingdom interest rates finally starting to edge up in 2016, but it is not a stone dead certainty”.

Following comments from Bank of England (BoE) policymakers during recent weeks, most economists now believe that United Kingdom interest rates will not be heading higher until 2017.

Sterling gained against the euro and traded at its highest in nearly three weeks against the dollar on Thursday ahead of a Bank of England statement that some are looking to for a more bullish tone on the timeline for interest rate hikes.

“These are all significant headwinds for the economy, and to raise interest rates in the middle of it all could be quite risky”.

The only member to vote for a rate rise was Ian McCafferty, one of four external members on the panel.

“We suspect that decent United Kingdom economic growth, stronger earnings growth overall and consumer price inflation gradually trending up will prompt the MPC to act around May”.

The outlook for inflation reflects the balance between persistent drags from factors such as sterling and world export prices and prospective further increases in domestic cost growth.

“Despite low interest rates, rising debt levels have pushed debt service ratios for households and firms above their long-run averages, particularly since 2013, signalling increased risks of financial crises” in emerging market economies, the BIS said.

“Raising rates this year will, in my view, serve to reduce monetary policy uncertainty and to keep the economy on track for sustained growth with price stability”, Mr Harker was reported as saying.