Bank of England keeps interest rates unchanged

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.

“Expectations at the start of this year were calling for higher wages, inflation and interest rates”, said Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank.

The November jobs figure from the Bureau of Labor Statistics was slightly ahead of expectations and meant that the unemployment rate held at its seven-and-a-half year low of five per cent. It could be that this is an ideal time to increase rates since business activity will be winding down for the Christmas break and will give investors time to absorb the impact (or otherwise) of any rate hike which will be incremental, in any case.

Federal chair Janet Yellen has indicated that a rise in USA rates is a near certainty when America’s policymakers decide on December 16.

The rise in U.S. rates would be the first since 2006 and there are fears it will trigger market disruption, also coming at a time when the global economy and China’s growth have been slowing.

Consumer price inflation rose from 0.9% the month before to 1.0% in November, due mainly to a narrowing of the scale of decline in petroleum product prices and to expansions in the extents of increase in service fees.

Returning inflation to target “depends on an increase in domestic cost growth sufficient to balance the drag on prices from very subdued global inflation and past increases in the value of sterling”, the December meeting minutes said.

United Kingdom interest rates have been left unchanged again at 0.5% by the Bank of England’s rate-setters.

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

BoE Governor Mark Carney has previously said that the decision on when to raise rates was likely to come into “sharper relief” around the turn of the year. Those forecasts are lower than the central bank’s projections in its September inflation report, at 3.2 percent and 2.5 percent.

Francois Cabau, a Barclays analyst, said that the minutes “confirmed that a Bank rate hike is off the table in the short term, and as long as economic data do not pick up”.

By contrast, traders are more evenly split, meaning there is a risk of currency volatility whether the central bank cuts or holds the OCR at 2.75 percent.

The Reuters poll projected 2.8 percent economic growth for this year and a slowdown to 2.25 percent next year.