Following media predictions of an interest rise sooner than previously expected, The Bank of England (BoE) surprised financial markets Thursday by taking a no-action response by delaying the anticipated bank rate rise until next year, despite signs of an improving economy.
One factor in the BoE Monetary Policy Committee’s (MPC) decision appears to have been its downgrading of its short-term forecasts for inflation. Just one committee member of the 9-member MPC voted in favour of a rate increase, leaving borrowing costs at their current level of 0.5 per cent.
UK economic growth forecasts for the current year were upgraded again, but forecasts for inflation in 2015 are halved from 0.6 per cent to 0.3 per cent. Inflation fell to zero in June this year and is now expected to hover around that level for the next few months, before starting a sustained rise towards the middle of 2016.
Mark Carney, governor of the Bank said at a press conference that the first rate rise since 2007 was getting closer, its timing depends on the economic outlook:
“The likely timing of a first bank rate increase is drawing closer, however the exact timing … cannot be predicted in advance.”
The Thursday decisions put the Bank on a more cautious footing that the US Federal Reserve which is expected to raise interest rates by September, though the UK will remain well ahead of the European Central Bank and the Bank of Japan, both of which are still applying fiscal easing in an attempt to kick-start their flagging economies.
Interest rates in the UK have not changed at 0.5% since 2007.
UK BoE interest rates remain unchanged – http://t.co/VYEOXkYhVJ
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