Bank of England board unanimously votes to maintain interest rates
Bank of England policy makers voted unanimously to keep interest rates on hold this month for the first time since July amid concerns about low inflation, minutes of their latest meeting revealed today.
Two members of the Monetary Policy Committee (MPC) abandoned their arguments for lifting the Bank rate by 0.25% after voting five times to do so since last summer.
The Bank judged that there was a “roughly even chance” that inflation would dip below zero during the first half of this year.
Sterling fell as the disclosure from the MPC’s meeting earlier this month appeared to push back further the timing of any interest rate hike with experts already expecting a rise would not take place until late this year or the start of next.
Interest rates have been on hold at the historic low of 0.5% for nearly six years and speculation over the last year about the timing of a rise nearing has been pushed back amid worries about the global economy and low inflation.
The MPC minutes recorded that the decision on holding interest rates was “finely balanced” for Ian McCafferty and Martin Weale, the two members who had previously been voting for a hike.
They still argued the sharp fall in inflation was largely driven by temporary factors – and believed it was unlikely to plunge into a “self-perpetuating” spiral – while noting that wage growth looked buoyant.
“Nevertheless they noted the risk that low inflation might persist for longer than the temporary factors implied and concluded that this risk would be increased by an increase in Bank rate at the current juncture,” the minutes said.
The Consumer Price Index (CPI) rate of inflation fell to a joint record low of 0.5% in December as the sharp fall in oil prices and the supermarket price war keep a lid on increases in the cost of living.
It means CPI is more than 1% off the Bank’s 2% target for CPI, triggering a letter which must be written by governor Mark Carney to Chancellor George Osborne with an explanation.
While subdued prices are welcome for households, inflation being too low threatens the risk of a damaging deflationary spiral in which consumers put off purchases and firms put off investment in the belief that prices will fall.
