No rise in interest rates expected until early 2016

At its August Monetary Policy Committee meeting, members voted to keep the benchmark bank rate unchanged from its record low 0.5 per cent, for the 78 consecutive month.

Britain moved one step closer to higher interest rates after the Bank of England’s Monetary Policy Committee split for the first time, it was revealed today (6 August). However, once the effects of the energy price falls have worked through the system, inflation is expected to reach the target level of 2% by late 2017.

Bank of England governor Mark Carney said the fall in inflation – which dipped below zero briefly earlier this year – had been “the most striking development in the UK in the past year“.

The Bank raised its 2015 GDP forecast to 2.8% compared to the 2.5% it saw in May.

The strong pound and low fuel costs would continue to push down inflation until at least the middle of next year, the bank said.

In recent weeks, traders have become increasingly bullish about the timing of an increase in the bank’s 0.5 per cent main rate, with forward contracts based on the Sterling Overnight Index Average (Sonia) implying a move next May.

But the bank said a collapsing stock market in China and continuing talks over Greece’s debts meant the outlook for global growth was muted.

Carney last month suggested rates could rise at “around the turn of this year” as the recovery strengthens.

GBP to Euro, USD, CAD Conversion Rates Lower on Dovish BoEThe Pound weakened significantly against the majors on Thursday, as an overload of information from the Bank of England was released. Thereafter the path of rate rises is likely to be a slow incline, and it wouldn’t surprise me to see them stuck on 0.75% for some time.

Despite the central bank maintaining the key rate, governor Mark Carney insisted that the time for a hike is moving closer.

Sterling immediately weakened on the news, as expectations for the timing of the first interest rate rise were pushed back, noted Mr Brettell, meanwhile the FTSE 100 jumped.

Sentance, who is now a senior economic advisor for accountancy firm PwC, said this could lead to minutes that are “not as informative” as they used to be.