Bank of England keeps rates unchanged

“Perhaps most important for monetary policy today, this approach also suggests that sterling’s recent appreciation could create less drag on import prices and inflation than we might have expected if the levels of pass-through (a measure of how responsive global prices are to changes in the exchange rate) seen after the crisis persisted”.

At their September meeting, the MPC voted unanimously to keep the asset-purchase facility at £375 billion (Dh2.1 trillion).

They showed that Ian McCafferty, an external member of the nine-member MPC, was a lone voice in calling for an increase of 0.25% to 0.75%.

“Although the downside risks emanating from overseas had risen, it would be premature to draw strong inferences from this month’s events for the likely path of activity in the United Kingdom”, the MPC said in minutes of its monthly policy meeting.

That was the highest level of expectation about a rate hike since May 2011, the BoE said. The economic recovery in the United Kingdom appears to have faltered (albeit temporarily in our view), the labour market has weakened and a return to deflation in the next few months is likely, ‘ she said.

While the central bank’s main reason for deferring the rise revolves around uncertainty over economic growth, Woolnough believes that not only can the United Kingdom economy handle a rate rise, unless one comes soon then inflation may get out of control.

Question 7: Asked what would be ‘best for the economy’ – higher interest rates, lower rates or no change – 22% thought rates should ‘go up’, up from 17% in May.

Her comments came after a deeper than feared 1 per cent fall in construction output in July – figures that laid bare the biggest annual slide in home building for over two years.

Oleg Kuzmin of Renassiance Capital said that another 50-basis-points cut can be expected in the rest of the year if ruble volatility declines.

The Bank of England may have to increase its interest rates sooner than expected in order to fend off inflation, one of the UK’s interest rate setters has warned.

United Kingdom inflation has held below the BoE’s two per cent target since the start of 2014, and it’s been close to zero for much of this year.

In a recent speech, Carney signalled that early next year remains a possible starting point for interest-rate increases. If we were to delay raising rates until the probability of a subsequent reduction seemed extremely low, we would nearly certainly have waited too long, and would risk letting inflation drift significantly beyond our 2 per cent target.

When the MPC announces its monthly rate decision on Thursday, City experts will seize on any hint that the Chinese economic slowdown could push back plans to raise interest rates.