Bank of England Leaves Rates On Hold

The Bank of England kept its key rates unchanged at a record low again as widely expected, in a split vote at the final monetary policy meeting of the year.

Atlanta Fed president Dennis Lockhart recently signaled a similar approach, flagging “direct evidence” of inflation rising as his hurdle for future rate hikes.

The statement noted that the global economy is expected to keep a modest recovery, but it said that the change in the USA monetary policy would increase the global financial market’s volatility and weaken growth in emerging economies.

Managing Director Barnabas Virag, who is not a rate-setter, told Reuters there was significant room for long-term interest rates to sink lower.

The central bank has held off on increasing its interest rates, in part because price growth has been so weak.

Bank of England governor Mark Carney has already said a decision to raise rates in the US is “not decisive” for UK policymakers, stressing any such move on these shores will be made according to UK economic conditions. Yet there are other reasons why the Bank might feel that the time is approaching for a rate hike.

The central bank has confounded economists’ expectations in seven of its 12 rate decisions this year as it tries to spur growth after three recessions since 2009.

What markets are looking for is any signal of how close the Bank is to raising interest rates.

Asian stocks sank further Thursday as regional central banks came into focus with less than a week before the U.S. Federal Reserve decides whether to raise interest rates.

For the sole dissenter on the MPC, Ian McCafferty, the risk that inflation overshoots its 2 per cent target within two years was sufficient to justify an immediate rise in the benchmark rate to 0.75 per cent. German bank Berenberg on Thursday pushed back its forecast for the first increase to May 2016, from February.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy in order to meet the 2% inflation target and in a way that helps to sustain growth and employment.

Separately, the Federal Reserve said Monday that the average yield for one-year Treasury bills, a popular index for making changes in adjustable-rate mortgages, rose to 0.54 per cent last week from 0.51 per cent the previous week.

“The current benefit is probably minimal compared to in the past, where the Chinese yuan has depreciated and we would see a pickup in exports”, Mr. Yeo said.

Official figures earlier this week revealed that manufacturing output dropped by 0.4 per cent month-on-month in October – worse than expected and a sharp reversal of the 0.9 per cent rise in September.