Bank of England gives no sign of rushing to raise rates

Such is the expected impact on inflation, the Bank of England sees the chances of inflation exceeding its 2% target in three years as only 55% even if rates stay as low as they are today.

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

United Kingdom consumer-price growth will remain below 1 per cent – less than half the central bank’s target – until the second half of 2016 and there are downside risks to this outlook, it said in London on Thursday. “Many emerging market economies have slowed markedly and the Committee has downgraded its assessment of their medium-term growth prospects”, the Bank of England said in its report.

The meeting was closely watched as Bank of England Governor Mark Carney has said the end of the year will bring more clarity as to when rates will rise.

The bank said that the outlook for global growth had weakened, which was depressing the risk of inflation.

‘The surprise was that no-one joined Ian McCafferty in voting for an immediate 0.25% rate rise, ‘ said James Knightley, economist at ING.

Shafik said the BoE’s most important message for investors over the last couple of years was that interest rates were likely to go up only slowly and to a level lower than before the financial crisis.

The BoE is watching the labour market closely for signs that inflation pressures are building.

At the same time it cut predictions for growth in the United Kingdom next year from 2.7 per cent to 2.5 per cent.

The Monetary Policy Committee released its interest rate and quarterly inflation report, which was noted as being dovish on Thursday.

The MPC’s view, setting aside Chief Economist Andy Haldane, is still that the next move in Bank Rate is more likely to be up and that the path of hikes will be gradual and limited.

He says: “When the Chancellor confirms that the FPC will get powers over the buy-to-let market, I think the most logical thing they will try to do is to introduce the same stress test as they require for residential mortgages, which is to test affordability against a 3 per cent interest rate rise”.

At the two-year horizon, it still expects inflation to be slightly above its target, and to rise further thereafter.

Forward contracts based on the sterling overnight index average, or Sonia, indicate that a full quarter-point boost to the official bank rate won’t come until after December 2016.

Low inflation was a key factor in the decision.

But robust surveys this week from the services, manufacturing and construction sectors suggests growth may pick up again in the fourth quarter.

Inflation is expected to remain below 1 percent until the second half of next year, the bank added, reflecting the continuing drag from commodity and other imported goods prices.

It was unlikely that the Bank of England would raise rates: no major central bank will do that before the US Federal Reserve signals its first upward move in rates.