The British Pound Lower After the BoE Keeps Interest Rate Unchanged

The BOE’s nine-member Monetary Policy Committee voted 8-1 to keep borrowing costs at a record-low 0.5 per cent in its last decision of the year, sticking to the status quo.

The 12-month Consumer Price Index (CPI) inflation rate stood at minus 0.1 percent last month, unchanged from September.

The Bank of England will be in no mood to lift interest rates any time soon as it said today there was a high chance that inflation will remain near zero in the coming months due to a renewed fall in oil prices. Indeed, many of its central bank peers around the world have hiked rates in this post-financial-crisis era, only to be forced to cut again within months because their local economies couldn’t handle it.

The U.S. Federal Reserve is expected to raise interest rates next week, while the European Central Bank cut a key rate earlier this month.

It might also be a reflection of employers offering lower wage deals because of low inflation, something the Bank has said previously said could hurt Britain’s recovery. The vote split was also no surprise; Ian McCafferty voted to raise rates by 0.25 percentage points, while the other eight rate setters preferred to stay on hold.

The bank said the scope of future monetary easing would depend on the inflationary impact of “movements on worldwide commodity and financial markets”.

Elsewhere, the Australian dollar jumped, last up 0.9% to 0.7293 against its US counterpart, after the country reported employment growth of 71,000 jobs during November, compared with an expected decline of 10,000.

In a statement the bank cited the “uncertain reaction of market participants to the expected rise of the Fed benchmark rate and its… effect on capital flows towards emerging markets”.

“And we have to admit making a similar comment a year ago, regarding interest rates being likely to start inching up in 2015”, Howard Archer at IHS Global Insight said in a note on Friday.

A top BoE official then warned investors against reading too much into the Bank’s projections based on market estimates when it came to assessing the outlook for rates.

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”.

But overall, the tone of the minutes published on Thursday suggested the Bank was at least a few months away from any move to start weaning Britain off the stimulus of low rates. If it does keep the rate unchanged, any gain in the kiwi may be limited by the prospects of a Fed hike next week, traders said.